STANDPoint
Egypt / Strategy Note / 2023 Fundamental Outlook
Dear Client,
Last year, 2022, was as eventful as a year can be, not only for Egypt but for the whole world.
Globally, investors had to deal with war where least expected, Europe. Just as the world was on the verge of recovering from a 2-year mayhem resulting from a once-every-100-years pandemic, another global event took us all by surprise on 24 February 2022 when the Russia-Ukraine war broke out. This is almost two years after suffering from COVID-19, further extending global supply chain disruptions and adding another crisis into the mix: energy. All considered we should brace for weaker-than-expected global growth, a gradual fall in inflation rates which will likely continue to be elevated, and less hawkish central banks as they try to accommodate their weakening economies mostly toward H2 2023. Thus, the global investment call by many market pundits has been to overweight fixed-income and underweight equities. Regionally speaking, both emerging markets (EM) fixed-income and equities are in favor as opposed to developed markets, including Europe which is still not out of the woods yet.
Here at home, both local and foreign investors had to deal with two structural events, both relating to the value of the Egyptian pound vs. other hard currencies led by the greenback. Two rounds of EGP devaluation in late March and late October 2022 were enough to turn investors’ attention back to the macroeconomic backdrop. On the one hand, if investors got the macro picture right, they had a better chance of picking the right stocks in the right sectors at hopefully the right time. On the other hand, continued instability means volatile stock returns and hence the importance of following an active strategy.
Taking a closer look at the local market, we notice that all styles ended 2022 in the black, led by value stocks (small-, large-, then mid-cap stocks), which was our call early 2022. Still, growth and core stocks did quite well, generating double-digit returns except for small-cap growth stocks which posted a low single-digit return.
In terms of our factor analysis, it was the highly-liquid stocks that did well (+30%), followed by the liquid stocks (+25%), which were the top performers in 2021, then the illiquid stocks (+22%), the worst performer two years in a row. Also, as we correctly nailed it in 2022, dividend-paying stocks did the trick and returned a good +46% vs. only +11% for non-dividend-paying stocks. Similarly, low-volatility stocks (+31%) outperformed high-volatility stocks (+19%), a switch that we also called for last year. Last but not least, average-beta stocks (+35.5%) outperformed.
But that was last year, what about this year?
We think this year will be the year of adjustment, where investors will need to go back to their drawing boards to devise strategies that deal with more heightened volatility. So, I am not sure why we have to select stocks at the beginning of every calendar year, when investing should be an throughout all seasons. Thus, this strategy note has our 2023 fundamental outlook, where we lay out our views for Egypt’s macro backdrop, run our equity screens, and lay out our top stock picks in what we would like to consider an “all-weather” portfolio, which we dub as “STANDPoint Portfolio”. This is why we are not making sector-based calls, preferring more of a bottom-up approach.
Wishing you a prosperous year and more years to come.
—Amr
For the full report, please click here.
Amr Hussein Elalfy
MBA, CFA
Head of Research
T +202 3300 5724
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