Egypt’s reforms hailed as helpful for distressed stocks

Egyptian statuesBy liberalising the exchange rate, raising fuel prices and promising structural adjustments approved by the IMF, Egypt is said to have improved the outlook for equity investors.

Egyptian stocks that are trading at distressed valuations may offer especially attractive returns, according to emerging markets investment firm Exotix Partners.

“The authorities deserve credit for overcoming significant ideological opposition to free-floating exchange rates,” said Exotix Partners in a statement, “and all the more so for resisting the temptation to intervene as the market finds its level.”

Prior to the recent reforms, Egypt was still pursuing mega-projects funded by sovereign support from the Gulf and resisting exchange rate liberalisation. Then, Exotix Partners favoured stocks such as banks and others with revenues in US dollars, such as mining companies.

But given the free-floating Egyptian pound, the firm now favours companies such as Telecom Egypt, Palm Hills Development, Egypt-Kuwait Holding and Oriental Weavers.

“In contrast to many other African markets that only export raw materials, 40-50% of Egyptian exports contain some degree of local value-addition, which will benefit from the weakening of the pound,” says the firm.

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