Are Egyptian assets a buy?

AP Photo/Amr Nabil

AP Photo/Amr Nabil

Published Apr 28, 2017

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Johannesburg - Egypt

is reaping the rewards of a painful devaluation.

The plunge that

sent its currency tumbling the most in the world over the past six months has

made the nation’s assets among Renaissance Capital’s top picks in developing

nations. The Egyptian pound is now the cheapest of all emerging-market and

African currencies after it scrapped controls in November, the investment

bank’s real effective exchange rate model shows.

The weaker

currency should spur exports and encourage foreign direct investment over the

next few years, according to Charles Robertson, RenCap’s London-based global

chief economist.

“Egypt is one of

the most interesting stories in emerging markets right now for any investor

anywhere,” he said on Monday in an interview in Cape Town. “There is an

investment opportunity in Egypt now that’s as good as it was in South Africa

when the rand was 16 to the dollar a year ago.”

Read also:  'South Africa will weather the storm'

The nation

allowed its currency to float to tempt foreigners back to Egyptian markets and

alleviate a dollar shortage that has crippled the economy. The North African

country in February was said to have cleared the backlog of investors seeking

to repatriate funds, which had been one of the reasons why money managers

steered clear of Egyptian assets.

Should investors be concerned about Egypt’s

risks?

“It’s the most

risky country in emerging markets to invest in in terms of regime change, along

with Thailand. But President Abdel-Fattah El-Sisi is not likely to anoint

himself as king forever.” “What’s more likely, if there is change, is it

becomes a little bit more like a Turkey or a Russia or a Malaysia, where

Parliamentary elections do happen, more parties can compete in them, but it’s

not full democracy.” “The question is: is it in the price? When you have got

the cheapest currency in emerging markets, or Africa, I think it is very much

in the price.”

What other

investment opportunities do you see in Africa?

“The ones that

are interesting are Ghana after the election of a new pro-reform government in

December, and Ivory Coast, with the caveat that they have had a few army

mutinies and that is putting some fiscal pressure on the country right

now.”  “And potentially Zambia, but that’s not without its problems. It

has come up quite a lot since the copper price rose. And then there are places

like Rwanda, which continue to be interesting to us.” “Morocco is an expensive

market, but the macro picture is very, very good.”

What about South Africa?

“Our fair value

for the rand, based on our real effective exchange rate mechanism model, is

12.30 to the US dollar. I struggle to get excited about that currency when it’s

at fair value, given the change in finance minister that we’ve had, given the

downgrade from investment grade, given the likely further downgrade from

Moody’s Investors Service, which is coming.”  “South Africa is not going

to get a rating upgrade for a good few years. I wouldn’t be adding to positions

in South Africa at R12.80 to the dollar, given what’s happened.” “The

difficulty for South Africa is that while the numbers are not all that bad,

it’s that over the last 20 years, they haven’t improved.” “But I’m more

confident about South Africa than I am about Turkey.”

And Nigeria?

“It’s become

interesting again in Nigeria. It all changed on Friday night because the

central bank produced a new foreign exchange rate for investors. This

investment rate seems to allow the currency to trade within a few percent of

the parallel rate. It seems investors will be able to bring money in as take

money out at that rate.” “Up until now you have been bringing money in at a

rate of 315 naira to the dollar and you have been struggling to get any money

out at all. Around 370 to the dollar is a reasonable rate to put money in.”

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