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Avior – HC Egypt Virtual Conference 22-25 May

  • Over 4 days 22-25 May, HC Brokerage and Avior Capital Markets hold their third Virtual Conference

  • “Avior – HC Egypt Conference May 2023”

The Avior-HC Egypt Virtual Conference started yesterday and runs until 25 May, offering financial institutions from the US, Canada, Europe, South Africa, the UAE, and Egypt insights on compelling investment opportunities within the Egyptian equities market. Investors will e-meet representatives of 29 listed companies on the Egyptian Exchange (EGX) through group and one-on-one meetings.

The CEO of the Sovereign Fund of Egypt (SFE), Mr. Ayman Soliman, was the keynote speaker of the opening session of the conference, where he shared highlights of the Egyptian government’s partial asset sale program currently underway.

Hussan Choucri, Managing Director of HC Brokerage, said: Our third initiative, in cooperation with Avior, comes within our relentless endeavor to promote investment opportunities in Egypt, especially in light of the current global economic conditions.


For Further details on Avior Capital Markets, please visit: https://avior.co.za/

For Further details on HC Brokerage, please visit: https://www.hc-si.com/


About Avior Capital Markets

Avior Capital Markets (Pty) Ltd is an independent, globally recognized capital markets research and trading firm providing in-depth and insightful research in a broad range of equities, fixed income, and derivatives in South Africa and Sub-Saharan Africa. Avior Capital Markets US LLC is a FINRA registered broker-dealer (CRD # 172595) formed for that purpose in the State of Delaware with its principal office at 733 Third Avenue, New York, New York 10017.


About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Mohandessin 12655


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HC believes that a 100bps hike is possible

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled May 18th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates 100bps.

 Financials analyst and economist at HC, Heba Monir commented: “ Our comment: We see the recent deceleration in inflation rate to be short-lived and expect inflation to inch up 1% m-o-m in May following the recent increase in diesel prices and changes in the ration cards system, averaging at 30.2% for 2H23, on our numbers. Also, the banking sector’s net foreign liabilities (NFL), including the CBE, widened to USD24.5bn in March from USD23.0bn in February, according to CBE data. Excluding the CBE, the banking sector’s NFL widened significantly to USD15.6bn in March from USD13.8bn in February. As a result of the pressure on the local currency, Egypt’s 1-year CDS reached a record high. On a more positive note, the current account registered a surplus of USD1.41bn in 2Q22/23 for the first time in many years compared to a deficit of USD3.80bn a year earlier, mainly due to significant import control. On the other side, the capital and financial account recorded a deficit of USD1.63bn in 2Q22/23, reversing a surplus of USD5.38bn a year earlier, mainly due to a USD3.96bn deficit in the assets of the banking and other sectors compared to a surplus of USD2.38bn a year earlier and net foreign portfolio outflows reached USD855bn in 2Q22/23 bringing these outflows to USD3.01bn in 1H22/23. The external debt increased by c5% q-o-q and c12% y-o-y to USD163bn in December 2022.  A 100 bps policy rate hike in the coming meeting could increase the required 12M T-bills rate to 27.5%, based on our calculations, due to a significant hike in Egypt’s 1-Year CDS to 2,510 bps from only 618 at the beginning of the year and a widening in the inflation differential between Egypt and US to 29.1% in 2Q23 from 24.2% in 1Q23, which would translate into a real interest rate of 6.57% based on our calculation (accounting for a 15% tax rate for US and European investors and 16.5% inflation in May 2024) compared to 3.63% currently and 0.50% in the US. We believe this could attract carry trade again, especially with the Federal Reserve hinting that are no more hikes expected soon. So, considering our inflation expectations until year-end, the need to attract carry trade, the banking sector’s widening NFL, and the delay in the partial asset sale program, we expect the MPC to raise the policy rates by 100 bps. The downside of a rate hike is higher debt servicing costs; however, we see bridging the FX shortage through carry trade as a more urgent priority.”

It is worth mentioning that, in its 30 March meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 200 bps to 18.25% and 19.25%, respectively, with a total of 200 bps y-t-d and 800 bps in 2022. Egypt’s annual headline inflation decelerated to 30.6% y-o-y in April from 32.7% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.7% m-o-m in April compared to an increase of 2.7% m-o-m in the previous month. On the global front, the US Federal Reserve raised interest rates by 25 bps on 4 May to a range of 5.00-5.25% with a total of 75 bps y-t-d and 425 bps in 2022. Based on Egypt’s current economic situation, we provide below our expectations for the likely outcome of the 18 May MPC meeting.

Impact of Multipolar System on Egypt’s Economy


Impact of Multipolar System on Egypt’s Economy

Recent developments in the global economy, including the Ukraine-Russia conflict and the COVID-19 pandemic, have contributed to a shift towards an economic multipolar system. At HC Securities & Investment, we are closely monitoring these economic trends and their potential impact on the MENA region. Our focus is ensuring that our investors and clients’ interests are protected, and we are committed to providing sound and expert advice based on our analysis of the evolving economic landscape.


A multipolar economy defined

An economic multipolar system is a global economic system in which multiple countries possess significant economic impact and influence, in contrast to a unipolar system where only one country exerts dominant influence over the global economy.


In the past, the United States has typically been considered to drive the global economy. However, rapid growth in emerging markets such as China, Brazil, South Korea and India in recent years has contributed to the shift to a multipolar system, in which multiple countries carry major economic impact.


Impact of the Ukraine – Russia conflict

The conflict between Ukraine and Russia has contributed to the shift towards multipolarity. Sanctions imposed on Russia by the West have weakened its economic position and created opportunities for other countries to increase their investment and influence in the region.


Globally, the sanctions on Russia brought about a degree of economic uncertainty, leading its closest trade allies to reassess their relationships and redirect their economic influence to other countries to maintain stability.


Impact of COVID

The COVID-19 pandemic has also accelerated the shift towards a multipolar system. Emerging economies, such as China, that were more resilient to the pandemic increased their economic influence, while countries all over the world struggled with the unexpected consequences of the pandemic. The pandemic also led to changes in global trade and investment patterns, as countries sought to diversify their supply chain and reduce their dependence on one country.


Egypt’s future in a multipolar world

Multipolarity presents both challenges and opportunities for Egypt’s economy. As one of Russia’s major trading partners, sanctions on Russia have led to a decline in trade between the two countries. Additionally, the COVID-19 pandemic slowed down Egypt’s economy and led to a decrease in tourism, which is a crucial source of foreign currency for the country.

However, as the world becomes more interlinked, Egypt is presented with promising opportunities for economic expansion. Emerging markets can boost trade and investment in Egypt and diversify the country’s economy. With the global economic landscape rapidly evolving and competition among markets intensifying, now is an opportune time for Egypt to take advantage of these opportunities. By attracting foreign investment, leveraging technology and expertise, and improving its overall competitiveness, Egypt can strengthen its position in the  multipolar system.

At HC Securities & Investment, we keep pace with the rapidly changing times by offering innovative products to meet the evolving requirements of our diverse clients, which include commercial banks, regional sovereign wealth funds, government and private institutions, insurance firms, and high net worth individuals.

To find out more about the impact of the multipolar world on Egypt’s economy, our HC Research team provides expert insights and analysis across various sectors, including financials, real estate and construction, chemicals, consumer goods, and more, along with macroeconomic coverage of the Egyptian economy.

HC believes the MPC is to increase the policy rates

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 30th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates.

Financials analyst and economist at HC, Heba Monir commented: “ We expect the MPC to continue tightening policy rates by around 200 bps in its 30 March meeting to tame increasing inflation rates, which we expect to continue rising, peaking at 35.9% by July, on our numbers, before it decelerates to 30.3% by December. We anticipate that March and the coming months’ inflation figures will reflect; (1) the early March c7-11% increase in octane gasoline prices and the c20% increase in heavy fuel oil (mazut) prices for all industries except food and electricity generating sectors; (2) the expected increase in household electricity effective 1 July; (3) the recent liberalization of the prices of essential food commodities like rice; (4) the shortage in local poultry supply due to problems related with animal feed prices and availability, affected by the Russia-Ukraine war, and (5) the continuing EGP devaluation which reached c20% y-t-d. As a result of the USD shortage, Egypt’s banking sector net foreign liabilities (NFL), including the Central Bank of Egypt (CBE), widened to USD21.6bn in January 2023 from USD20.0bn in December 2022. Excluding the CBE, the banking sector’s NFL widened to USD13.0bn from USD11.7bn in December 2022. In light of the inflationary pressures, the USD shortage, and Egypt’s need to keep the carry trade attractive, we calculate a required 12M T-bills rate of 25.18%, which considers soaring Egypt’s 1-Year CDS to 1,419 from 670 at the beginning of February. Foreign holdings in Egyptian T-bills increased by USD2.4bn from December 2022 to USD10.4bn by the end of January 2023. The latest 12M T-bills auction recorded an average yield of 19.19% (accounting for a 15% tax rate for US and European investors), which offers a real yield of negative 2.31%, given our inflation expectation of 21.5% in March 2024, solidifying our view of a needed increase in policy rates. We estimate the real yield to turn to a positive1.33% based on our calculated required after-tax 12M T-bill rate and expected inflation of 20.1% for April 2024.

On a more positive note, deposits not included in the official reserves increased for the third consecutive month, increasing in February by c19% m-o-m to USD2.61bn, yet it still remains below its level of USD9.18bn a year earlier, and net international reserves (NIR) inched up for the sixth consecutive month by 0.4% m-o-m to USD34.3bn in February, while dropping 16.2% y-o-y.”

It is worth mentioning that, in its 2 February 2023 meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the benchmark overnight deposit and lending rates unchanged at 16.25% and 17.25%, respectively after it hiked policy rates by 800 bps in 2022 and by 500 bps in 4Q22 alone. Egypt’s annual headline inflation accelerated to 31.9% y-o-y in February from 25.8% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 6.5% m-o-m in February 2023 compared to an increase of 4.7% m-o-m in the previous month, mainly due to increasing food and beverage prices by 14.4% m-o-m compared to an increase of 10.1% m-o-m in January. On the global front, the US Federal Reserve raised interest rates on Wednesday by 25 bps, bringing its total rate hikes y-t-d to 50 bps after it increased interest rates by 425 bps in 2022.

Arabian Cement – Diligently navigating headwinds

In a recent report, HC Brokerage shed the light on the cement industry in Egypt, specifically on Arabian Cement Company (ARCC) where they cut our 2022–25e EBITDA estimates by c12%.


  • The market is still digesting new macroeconomic and industry developments, which entails prudent pricing and cost management

  • Despite lowering our gross margin estimates, reflecting inflationary pressures, we expect ARCC to maintain its cost advantage

  • We cut our 2022–25e EBITDA estimates by c12%


Nesrine Mamdouh, Analyst of Industrials at HC commented that: “ Market supply/demand imbalance pressures local prices: While the Egyptian government’s introduced quota system in July 2021 curtailed local sales to 51–52m tpa, the increases in effective quota for 2022 left the effective total market capacity at around 56m tpa, 8.3% higher than the original 2021 quota. Our estimates reflect the Egyptian Competition Authority (ECA)’s July 2022 decision to increase the local cement sales quota by 8.0% and allow cement companies to exceed their quotas in certain months to regulate supply and demand. In 2022, local cement sales increased by c5% y-o-y to 51.2m tons, with the market achieving 91.4% of the quota while ARCC achieved 96.5% of its quota, demonstrating its above-average ability to take advantage of quota increases. For 2023e, if cement companies pass through the higher costs onto their customers, the retail selling price will increase to as much as EGP2,100-2,140/ton, negatively affecting demand. Therefore, we expect companies to absorb part of the increase in costs and forecast 2023e local cement prices at a range of EGP2,042-2,068/ton, moderately pressuring their margins depending on each company’s cost structure and exposure to export markets. We project local demand in 2023 to grow by an average of c2-3%, down from 5.4% a year earlier, reflecting the slowdown in construction activity. Maintaining the 2023 quota without occasional monthly increases will improve cement companies’ pricing power. Over 2023e–26e, we estimate local cement demand to increase by an average of c2.3% y-o-y and to grow at a CAGR of 2.27%. A recovery in private sector investments and any potential upcoming government decisions on private building permits are key upside risks to our numbers. As for ARCC, we expect local sales to increase by 2.1% y-o-y in 2023e to 3.29m tons, maintaining the 2023e quota. An occasional higher monthly quota would translate to an increase of up to c4% y-o-y in local sales. We forecast local sales to grow at a 2024e–26e CAGR of 2.51%.”


Nesrine Mamdouh added: “Exporting seems a more viable option for Egyptian cement players, especially following the recent EGP devaluation: Despite slimmer margins on cement and clinker exports historically, the EGP devaluation made exports more attractive and inflated the cash margins in EGP terms, improving the overall margins of exporting cement companies. In 2022, cement companies’ export volume increased c19% y-o-y to 9.56 m tons, and exports went mainly to Africa. Given an EGP devaluation of c37% in 2022, and c19% y-t-d.  ARCC captured a significant share of 10.5% of 2022 exports, following military-owned factories with an export share of c67%, Suez Cement Group with c12%, and other sector players with 10.5%, topped by Lafarge. We expect ARCC to maintain its high export volume of around an average of 1m ton/year over our forecast period and foresee a potential further increase in export in 2023e in case of lower-than-expected local demand and/or lower-than-expected local price adjustment to devaluation. Exporting gives the company a comparative advantage in securing its FX needs, lowering fixed production costs on larger-scale production, and offering an attractive cash margin in EGP terms. Also, we expect ARCC to further benefit from the government’s export promotion program and expect a higher income from export rebates, as implied by the FY22/23 state budget.”


Nesrine Mamdouh concluded: “Inflationary pressures squeeze cement companies’ margins, yet we expect ARCC to maintain its cost advantage: In February 2022, Russia’s invasion of Ukraine led to supply chain disruptions, driving commodities into a price spiral. As a result, coal prices increased dramatically, reaching an all-time high in August 2022 of USD388/ton (CIF), an increase of 3.05x over January 2022 average prices. This was fueled by the European ban on Russian coal exports, effective August 2022, which later caused significant divergence and distortions in coal prices across regions. However, coal prices softened to USD142/ton as of 1 February 2023, after Europe had already heavily stockpiled coal as an alternative energy source to natural gas. Russia redirected its coal sales at very competitive prices to other non-sanction destinations, including China and India, which are also likely to boost their domestic production in 2023, according to S&P Global forecasts. Furthermore, on 9 October 2022, the Egyptian Cabinet more-than-doubled the natural gas price for cement producers to USD12.0/mmbtu from USD5.75/mmbtu. However, natural gas was partially used by a few cement players and fully by very few companies like South Valley Cement (SVCE EY) which increased its cash cost per ton. This will also alter the fuel mix of the cement companies that partially use natural gas in their fuel mix, leading them to rely more on cheaper options. Based on our calculations, coal prices above USD285/ton CIF should make companies indifferent between using coal or natural gas. On 27 October 2022, the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 200 bps to 13.25% and 14.25%. Also, it moved to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the EGP against other foreign currencies. On 22 December, it raised the policy rates further by 300 bps, increasing cement companies’ working capital financing costs. The EGP devaluation of c19% since 27 October 2022 to date increased the cash cost per ton of cement players due to their coal imports and other foreign currency cost components of production. However, their exports will benefit from the EGP devaluation as they will become more competitive. Thus, we expect the devaluation to compress sector margins moderately in 2023e, holding all else constant, including export levels and cost structures. We expect coal and petcoke prices to normalize throughout our forecasting period, limiting sharp, abrupt increases in the cash cost per ton and alleviating the negative effect of EGP devaluation on margins. For ARCC, we are positive about its future performance and expect it to maintain its cost advantage due to: (1) its flexibility in changing its fuel mix to the most cost-effective one, 2) its effective raw material procurement and inventory management strategies, which proved to be successful, especially over the last two years, 3) its growing reliance on solar energy to cut costs, and (4) its remarkable export level, estimated at c23% of total sales in 2023e.”


Egypt real estate – Subpar economic conditions warrant selectivity

HC Brokerage issued their update about Egypt’s real estate sector shedding the light on six main players’ performance following the most recent market dynamics.

  • While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing

  • We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “ Soaring inflation is pressuring affordability and leading to cost overruns; in our view: A high inflation environment, causing negative real interest rates, has historically served the Egyptian real estate sector well, as investors usually view it as a safe haven. However, the current macro environment is challenging to the industry, in our view. Cost-inflationary pressures, caused by soaring inflation rates, which averaged 13.8% in 2022, led to cost overruns and pushed developers to resort to receivables securitization more than bank debt, which pressured their operating margins. We expect this to continue into 2023e as we expect inflation to average 21.5%. The Central Bank of Egypt (CBE) raised the key policy rates by 800 bps in 2022, and the EGP devalued by c37% in 2022 and by c18% y-t-d. To fend off dollarization and keep inflation in check, Egyptian public banks issued high-yielding certificates of deposits (CDs), offering an interest rate of as much as 25.0%, and private banks followed suit. In our view, the high-yielding CDs compete with investment in the real estate sector, adversely impacting its pre-sales which only grew by c8% in 9M22 in terms of value, while volume dropped c5% y-o-y for the six developers we track, as opposed to growing by c59% in 2021, which was volume and value-driven. Developers could not extend payment plans further, as previous years’ extended payment plans had already stretched their cash flows, raising concerns about affordability. In 2023e, we expect pre-sales growth to be price-driven.”

Elsaadany added: “Tourism recovery and EGP devaluation lead us to prefer developers with hospitality exposure; while we keep an eye on M&A targets: Given the currency outlook and a recovering tourism sector, as evidenced by higher occupancy rates, we like companies with significant hospitality operations, namely Orascom Development Egypt (ORHD EY) and Talaat Moustafa Group Holding (TMGH EY). Also, in light of a high-interest rate environment, we like developers who have been active in deleveraging their balance sheets and building on their ready-to-move inventory, putting themselves at a cost advantage, like Palm Hills Developments (PHDC EY). The three stocks also enjoy solid fundamentals and decent market liquidity. We believe three of the six companies under our coverage are subject to M&A speculation and/or currently the subject of a potential deal with ORHD’s sale of its subsidiary, Orascom Real Estate (ORE) to SODIC, under study. Also, in our view, MNHD and HELI are the two other developers we believe are most likely to be the subject of a potential acquisition due to their attractive land bank. As a result, the stock prices of ORHD, MNHD, and HELI rallied c20%, c43%, and c18%, respectively, during 2022, implying a value of EGP615/sqm of land for HELI and EGP1,227/sqm for MNHD at the current market prices. Given the outlook on the EGP, we maintain a favorable view on acquisition targets during 2023e despite them offering lower potential returns based on our valuations. The valuations for the deals/potential deals seen by the market ranged from EGP878/sqm—1,192/sqm of undeveloped land. The most recent offer by SODIC to acquire Orascom Real Estate (ORE), a subsidiary of Orascom Development Egypt (ORHD EY), implied a price of EGP878/sqm, or USD45/sqm. In our view, future potential deals should see a significant increase on an EGP basis.”

“The sector challenges are reflected in stock prices which are currently oversold with an average 2023e P/NAV and P/E ratios of 0.34x and 6.08x (excluding HELI), respectively, suggesting that the overselling is excessive, in our view. PHDC and TMGH stocks have not rallied as much as other real estate names despite both companies delivering good results, PHDC initiating a share buyback program, and both stocks paying dividends. PHDC is trading at a 2023e P/NAV of 0.29x, and TMGH is trading at 0.32x, lower than the sector’s average. PHDC offers the highest potential return of c83% and TMGH c57%, while the market assigns a negative value to TMGH’s land bank. Therefore, we maintain our Overweight recommendations for the two stocks.

In our view, an economic pickup, monetary easing, and the development of the mortgage market for the upper-middle segment would be the sector’s key triggers.”, Mariam Elsaadany concluded.

HC believes the MPC is to keep the policy rates unchanged


  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled February 2nd. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

Financials analyst and economist at HC, Heba Monir commented: “We expect the MPC to keep the policy rates unchanged to allow the market to absorb the 300 bps hike of the 22 December 2022 meeting. Also, the CBE declared that foreign investments in the Egyptian market exceeded USD925m in the week following the EGP/USD movement on 11 January 2023, mentioning that carry trade is becoming more attractive to foreign investors. We expect the headline urban inflation to accelerate and reach 23.5% in July 2023 before it retreats to 18.2% in December 2023, averaging 21.5% throughout 2023. We expect the EGP 1-Year T-bills to average around 20.6% in 2023 (accounting for a 15% tax rate for US and European investors), taking into the calculation a 200 bps rise in the corridor that we expect to materialize over the rest of the year. This considers fluctuations in Egypt’s CDS 1-Year, which currently records 504.7, down from its peak at 1,774 on 27 July 2022, yet still high compared to its record low of 181 on 17 September 2021. The EGP depreciated by c17% over the past month, registering EGP29.9/USD, due to the accumulated pressures on Egypt’s balance of payment (BoP) and high foreign debt obligations, although there was a slight improvement in (1) Net International Reserves (NIR) inching up 1.4% m-o-m for the first time since December 2020 versus a 16.9% y-o-y decline to USD34.0bn in December 2022, (2) the banking sector’s net foreign liability (NFL) position, excluding the CBE, narrowing by 16.7% m-o-m to USD13.7bn in November 2022 for the first time since July 2022 while widening by 93% y-o-y. The latest 12M T-bills auction yield of 18.57% (accounting for a 15% tax rate for US and European investors) offers a real yield of positive 0.57%, given our inflation expectation of 18.0% in January 2024, solidifying our view of a needed increase in policy rates until the end of the year.”

It is worth mentioning that, in its 22 December 2022 meeting, The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 300 bps to 16.25% and 17.25%, respectively. This decision accelerated its tightening pace by 500 bps in 4Q22, raising policy rates by 800 bps during 2022. Meanwhile, headline urban inflation surged to 21.3% in December 2022, with an average of 13.8% during 2022. On the global market, the US Federal Reserve raised interest rates by 425 bps versus an average inflation rate of 6.5% during 2022.


HC believes that the CBE is expected to hike policy rates by 200bps

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled December 22nd. Based on Egypt’s current situation, they expect the CBE to hike policy rates by 200 bps for inflation-targeting purposes and to make carry trade attractive in the following meeting

Financials analyst and economist at HC, Heba Monir commented: “We expect the MPC to hike policy rates by 200 bps for inflation-targeting purposes and to make carry trade attractive. Inflation accelerated in November, rising 2.3% m-o-m and 18.7% y-o-y, and exceeded our estimate of 16.5%. This acceleration in inflation, coupled with the current shortage in foreign currency inflows, led us to expect an annual inflation rate of 19.1% in December. The EGP depreciated by c7.0% since 27 October 2022 and 36.2% y-t-d due to the accumulated pressures on Egypt’s balance of payment (BoP) and high foreign debt obligations as (1) external debt to GDP is expected to increase to 38.8% in FY22/23 from 37.7% in FY21/22, according to official estimates, (2) net International reserves (NIR) retreated by c18% y-o-y in November to USD33.5bn, with a 67.7% y-o-y increase in gold versus 22.3% y-o-y decline in foreign currencies, (3) August remittances declining c8% m-o-m to USD2.2bn, (4) the banking sector’s net foreign liability position, excluding the CBE, widening to USD16.4bn in October from USD5.0bn a year earlier, (5) the drop in foreign currency deposits, not included in the official reserves, to USD1.67bn in November from USD11.5bn a year earlier, and (6) Egypt’s external debt repayment schedule showing repayment of dues of USD20.2bn over FY22/23. The 12-month after-tax T-bills average yield reached 15.99% (accounting for a 15% tax rate for US and European investors) in the most recent auction with a bid-to-cover ratio of 3.20x, indicating higher required yields. Egypt’s 12-month T-bills currently offer a real yield of negative 0.1%; factoring in the 200 bps increase will make carry trade more attractive.”

It is worth mentioning that, in a special meeting on 27 October, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to raise policy rates by 200 bps and moved to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the EGP against other foreign currencies, which led to a c14% EGP depreciation. Accordingly, this brought the cumulative interest rate hikes in 2022 to 500 bps, concurrent with the Federal Reserve Bank’s (Fed) cumulative interest rate increases of 375 bps y-t-d.

HC’s take on the CBE’s interest and exchange rates decisions

The CBE’s 200 bps policy rate hike aligns with our previously announced expectations of a 200 bps interest rate increase before year-end, which should help contain inflation, which reached 15.0% in September, and makes carry-trade more attractive. Assuming that the rate hike will be reflected in the treasuries market, we estimate that the 12-month T-bills will offer a positive real interest rate of 2.36% (up from 0.66% before the rate hike) compared to a negative real yield in the US. Our calculations consider the latest after-tax 12-month T-bills auction, a 15% tax rate on treasuries imposed on US and European investors, and our estimate of a yearly inflation rate average of 14.62% over the coming 12 months. As for the CBE’s decisions on the FX system in Egypt, allowing banks to use FX derivatives and gradually canceling import trading through LCs, we believe it will make the USD more available in the market and help restore business activity in Egypt. This morning the EGP devaluated by c13.7% to EGP22.84/USD against the USD, which implies a REER level of 91.82, suggesting the EGP is undervalued by c8% at current levels, based on our calculations.

As for the impact of the decisions on the banking sector, today’s announced high-yielding CDs by state-owned the National Bank of Egypt (NBE) will increase competition for private sector banks. However, we don’t expect it to be material considering the recently offered CDs by some private banks at higher rates and the higher yields on their treasuries investments, which will safeguard and improve their profitability.

As for the stock market, although higher interest rates are not generally positive for investment in the stock market, however, we believe that the stock market will react positively to the decisions due to very depressed market valuations that were reflecting the stagnation of business activity in Egypt.

As for the USD9bn of external aid that Egypt secured from the IMF and multilateral institutions, we believe it would fully cover Egypt’s 2H22 total debt repayment and part of that of 1H23. Most importantly, the agreements constitute a vote of confidence in Egypt’s structural reform program and guarantee that it continues on the right economic reform path. Egypt’s structural reform program will include policies to unleash private sector growth, including reducing the state footprint, adopting a more robust competition framework, enhancing transparency, and ensuring improved trade facilitation, which in our view, could unleash Egypt’s economic growth potential, that was held back for several years.

HC: Is The Supply Chain Crisis Impacting Capital Markets

  • Is The Supply Chain Crisis Impacting Capital Markets


Banks and investors are monitoring current supply chain imbalances closely. Capital markets are definitely impacted when the global supply chain experiences turbulence. Therefore, Capital Market suppliers like banks and investors in the Middle East and Egypt are paying close attention to how certain circumstances are impacting the global supply chain and capital markets.


As the world comes out of a global pandemic, we are entering into a Russia/Ukraine war that further compounds what was already a supply chain crisis. The doubling of these two worldwide occurrences has created a supply chain imbalance that hasn’t been previously observed. HC Securities & Investments is taking this moment to carefully navigate Capital Markets with our investors and clients’ best interests in mind. In this article, we will discuss exactly what is causing the supply chain crisis. As well as how Capital Markets are being impacted by it.


  • Global Factors & Geopolitical Issues Impacting The Supply Chain Crisis & Capital Markets

Just when COVID restrictions have begun to clear up, geopolitical conflicts like the Russia/Ukraine war offer new limitations and have caused some serious supply chain crises. Here are a few reasons why.


  • Port Congestion As China Increases Output

Chinese ports have been working in overdrive to first take in as many returning empty shipping containers as possible. As Chinese manufacturers ramp up production to meet increased consumer demand, the shortage of containers and surplus of goods has created massive congestion that is impacting Middle Eastern & Egyptian supply chains. Because the global supply chain and capital markets are inextricably linked, we are seeing a residual knock-on effect from port congestion that stimulates market volatility.


  • Spillover Impacts Global Ports Already Congested From Covid Restrictions

The Russia/Ukraine war has been raging with no sign of surrender from either side. Grain & fuel shortages around the globe are only one of the spillover effects the Middle East & Egypt are facing. Additionally, global ports where cargo has traditionally been shipped are facing extreme congestion as they try to compensate for other ports that have been closed or shut down due to the Russia/Ukraine conflict. This congestion only further bolsters supply chain imbalances that skyrocket consumer demand, and consequently inflation.


  • Russian Airspace Restrictions Delays Air Freight Transportation

Air transportation, especially along the Asia-Europe route has been severely altered. While air freight from China to the Middle East can avoid Russian and Ukrainian air space. The overall limitations and additional restrictions have created an environment where air freight liners are forced to prioritize certain, more important goods over others, causing shortages of goods in some areas.


  • Global Shortage of Truck Drivers Still Looms

Manufacturers, ports, and logistics firms were already being pushed to the edge throughout covid. This new Russia/Ukraine conflict has added an extra layer of pressure that has caused many truck drivers and port machine operators to simply quit. A global shortage of truck drivers everywhere has to be factored into the cost of goods now.


  • Congested Overland Rail Freight From China

Ports and rails are being pushed to the limit to keep up with consumer demand. This push to deliver has even congested overland rail freight routes coming out of China. Everyone destined for Northern European regions now have to avoid Russian rails and ship through Asia. The overall burden placed on rail operators is enormous.


  • Banks & Investors See Correlation Between Supply Chain Issues & Inflation

As many of the global factors and geopolitical issues listed above stimulate supply chain issues, inflation seems to tag along as an undesirable consequence. Foundational supply & demand principles dictate as consumer demand increases, manufacturers produce increased inventory to meet the demand. This in turn stimulates rises in costs, and inflation as customers are willing to pay increased costs for the products they demand.


Investors in the Middle East and Egypt understand this all too well and have taken a position within inflation-resistant markets. Firms like HC Securities & Investments is helping investors manage supply chain imbalances and inflation by shifting investor portfolios to more stable investments. Research shows that industries like healthcare and information technology have been somewhat resistant to the supply chain crisis and offer better stability for banks and investors.