KEY THEMES
The market has recently taken a breather with EGX 30 down 2.41% so far, paring its gains in August when it jumped 7.23%. We had questioned here before the possibility of EGX 30 bucking this 19-month trend, not recording two consecutive positive months since February 2019. Meanwhile, EGX 70 EWI is up 1.65% so far in September, following a 20.38% jump back in August and marking the fourth positive month in a row.
Our key theme still remains of a large-cap recovery, especially with Q3 2020 earnings season kicking off sometime in October. This quarter, which ends on 30 September, will mark the first quarter post-COVID-19 when the economy saw easing lockdown measures. Generally speaking, results should be better overall than Q2 2020, which we think will fuel optimism for the remainder of the year, unless we face a second wave of the pandemic — God forbid.
In terms of sector focus, our plan is still intact: consumer, health care, and education. Otherwise, market talks of an imminent reduction in natural gas prices have since end of July fueled prices of Abu Qir Fertilizers [ABUK] (+26%), Ezz Steel [ESRS] (+29%), and Sidi Kerir Petrochemicals [SKPC] (+31%).
Meanwhile, we might see the Egyptian government take an action to alleviate the situation that has been worsening for cement producers. Such actions might include reducing energy prices or perhaps setting capacity quotas. This would be an event-driven trade if it happens, but we can also brace for potential M&A activity in the cement industry, a “zugzwang” that would still be disadvantageous for industry players.