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No reason to rush into the Egyptian market, says Imara

Pan-African financial services group Imara has indicated to international investors there is no great need to leap into Egyptian equity markets following the ‘Arab Spring’.

Its analysts have recently returned from a study trip to Egypt and though they note substantial drops in share prices – hinting at value opportunities – they are happy to take their time before committing to this North African market.

In the past, Botswana-listed Imara had only limited exposure to Egyptian equities as it felt pre-revolution share prices failed to reflect the risks inherent in a market facing sizeable political, fiscal and social challenges.

John Legat, head of asset management at Imara, commented: “These problems have bothered us for a good few years; hence our low exposure.

“The difference now is that most other investors are also aware of these issues. This gives us comfort as the Egyptian risk premium finally reflects the underlying problems.”

This year, many blue-chip counters on the Egyptian stock exchange halved in value while Imara analysts estimate that foreigners sold about US$6 billion in Egyptian treasury bills – believed to be more than half the foreign holding.

However, Imara says foreigners have largely held onto their Egyptian equities.

Imara notes that wages have gone up by about 30%, a boost for businesses geared toward consumer spending. However, Egypt’s fiscal deficit may reach 10% of GDP this year.

Government is under pressure as 40% of its expenditure supports subsidies on key items like fuel. Any move to remove subsidies could provoke further unrest.

What’s more, the economy looks set to shrink by 3.5% in 2011.

Legat concludes: “We are evaluating the corporate fundamentals at the moment, but feel in no hurry to rush in.

“Zimbabwe, too, has its own political uncertainties, which, like Egypt, are well known. The difference is that dollarisation in Zimbabwe has removed the economic distortions and companies are in command of their own destiny.

“Good Zimbabwean companies are moving forward fast. That’s not yet the case yet in Egypt.”


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