DUBAI: Egypt's post-revolution equities are cheap but still not cheerful. Valuations are low even with a 27 percent rise in the benchmark index since the start of the year, due to successful parliamentary elections. But as the football violence, recent kidnappings of foreigners and spat with the United States demonstrates, political risks abound and are hard to measure. The Egypt market, still around one third lower than where it traded before the uprising, boasts a 4.5 percent dividend yield, roughly the same as forecast for its regional peers. But the stocks are priced at less than six times next year's expected earnings. That's around half the level of Saudi Arabia and Qatar — or only a tiny fraction cheaper than the main index in Dubai. Investors are already pricing in a further fall of around 15 percent of the value of the Egyptian pound against the dollar. But that could be worse if the government, running on dangerously thin foreign exchange reserves, fails to get financial aid quickly from the International Monetary Fund. It's possible to minimize some of the currency-related risks. Real estate stocks are a good hedge against devaluation and, or inflation, says EFG Hermes. The bank also favors entities with significant operations overseas, such as Orascom Construction Industries, and those that price their products in reference to the US dollar, like Sidi Kerir Petrochemicals. Even if Egypt's political risk has peaked, many potential flash points remain. The football tragedy has added pressure on the military to speed up the transfer of power to a civilian government. But it is difficult to predict how the generals will react. Violence could well mar presidential elections, which are yet to be held. And investors will certainly take fright if the United States withdraws the $1.3 billion of annual aid it provides to the Egyptian army — and which is tied to peace with Israel — in response to the decision to put NGO workers on trial. Egypt's stock market is cheap and tentatively recovering but investors should still expect a bumpy ride ahead. Una Galani is a Reuters Breakingviews columnist. The opinions expressed are her own.
