The inflation rate will moderate to achieve an average of 7.7% in 2020, and there is a possibility for Central Bank of Egypt (CBE) to have a new rate cut that could reach 200 basis points (bps), with the stability of the Egyptian pound, a report issued by the Research Department at HC Securities and Investment said.
Calculating the value of the expected average inflation, the real effective exchange rate (REER) model shows the stability of the value of the Egyptian pound with a slight expected decrease against the US dollar.
The report expected that the Egyptian economy will witness a number of positive indicators, including achieving a surplus in the trade balance of oil in the fiscal year (FY) 2018/2019 for the first time since FY 2012/2013, as well as the tourism sector revenues exceeding pre-2011 levels in FY 2018/2019, with continued improvement in remittances of Egyptians working abroad since FY 2016/2017.
The list of positive indicators of the economy included the success of treasury bills and bonds in attracting approximately $24bn in foreign investments by the end of January 2020 due to Egypt’s attractiveness in terms of flows benefiting from price differences (Carry Trade), as calculating the real interest rate in Egypt for the next 12 months at 3.59%.
The company selected 10 promising stocks with limited risk of low valuation in the consumer, financial, and industrial sectors, and some companies selected in the real estate sector based on the macroeconomic outlook, stressing that it prefers companies benefiting from the stability of the Egyptian pound while recovering personal consumption and private investment.
HC stressed that most of the companies that are under its coverage are now trading at less than its fair value, so they nominated 10 highly weighted companies to express promising performance and limited risk of lower valuation. These are Orascom Construction from the industrial sector, Eastern Tobacco, the Egyptian International Pharmaceutical Industries (EIPICO), Juhayna, Obour Land in the consumer sector, the Commercial International Bank, Abu Dhabi Islamic Bank – Egypt, Hermes Financial Group from the financial sector, and Talaat Mostafa Group and SODIC in the real estate sector.