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.”