Welcome back to yet another short trading week. Investors should be back in full force starting today through next week. The long weekend in observance of Eid El-Fitr left investors with few events to trade on, except for the MSCI rebalance which was announced last Wednesday night. This MSCI 2021 semi-annual index review (SAIR) will go in the history books as the one that finally changed the face of Egypt main index composites. Fawry [FWRY], the new kid in town, managed to replace Elsewedy Electric [SWDY], as the latter’s market cap failed to withstand minimum requirements. The change will become effective as of the close of 27 May 2021. It’s not very difficult to picture SWDY dealing with short term pains post SAIR; however, we think that MSCI index review was sort of a tactical overhang on the stock performance. We reiterate our view that such index review events should be exploited as mispricing opportunities. We still believe that changes in index constituents affect short-term institutional positioning towards new or deleted names, leaving zero effect on stocks' fundamentals, thus usually creating opportunities. Fundamentally speaking, we prefer SWDY to FWRY on a pure valuation basis.
Elsewhere, as we had pointed out end of April, Egypt Aluminum [EGAL] made our call worthwhile with the stock up 29%, outperforming both EGX 30 (+2.3%) and EGX 70 EWI (+4.6%). We continue to suggest commodity-linked stocks, such Ezz Steel [ESRS] which raised its selling prices three times in the past three weeks, the last of which was over the weekend. Also, GB Auto [AUTO] reported its Q1 2021 results late last Tuesday after market close, showing strong performance, which bodes well for a strong 2021 performance.
POSITIVE
AUTO: Q1 2021 results were strong, showing high growth rates on both revenues and earnings fronts.
ESRS: Higher selling prices should bode well for the company's financials in 2021.