Beltone Financial recommended buying into the Egyptian and Kuwaiti markets, while playing the Saudi market tactically, and neutral on the UAE in its MENA Macro & Strategy 2020 conference held Sunday on Fairmont Nile City Hotel in Cairo. Maged Shawky, chairperson of Beltone Financial, said it is the first year for Beltone to cover four markets; Egypt, Saudi Arabia, the UAE, and Kuwait. This came as a part of their further expansion strategy. Aliaa Mamdouh, the director of Macro and Strategy at Beltone Financial, believe that a strong EGP can maintain low inflation at an average of 7%, narrowing the inflationary gap and supporting a gradual uptick in private spending with a growth of 1.5% in the fiscal year (FY) 2019/20. She expects that all odds in favor of a stronger EGP with limited healthy fluctuations within the EGP 16/USD range throughout 2020 is supported by gradual private spending growth, moderate capex lending recovery, improving net oil balance position, solid portfolio inflows, growing bank net foreign assets, and manageable external-debt servicing schedule with declining short-term debt to total of external debt. She also expects seasonal fluctuations with minimal devaluation on a quarterly basis until the end of 2021 based on demand pressure. Aliaa believes it is too early for the recovery to balance during its growth, which will remain fueled by the government spending money on mega projects, and places pressure on the EGP outlook as import growth will remain below its historical norm until capex lending picks up pace. Moreover, she expects a $1bn reduction in the current account deficit (CAD) in FY 2019/20 to $7.3bn on an improving net oil balance and slowing import growth ahead of demand recovery in the second half (2H) of 2020. This is in addition to solid tourism revenue and maintained fixed income inflows on solid macro fundamentals and widening real interest rates that will be underpinned by the agreement to make EGP-denominated debt Euroclearable, supporting their EGP outlook. Adding to this is a 300bps cut in interest rates in 2020, easing the interest bill payment burden, slashing an estimated $2.5bn and improving the FY19/20 state budget. In the GCC, Tarek El-Shawarby, managing director and head of research at Beltone Financial, believes the resumption of crude oil supply in the second quarter of 2020 (2Q20) should support the growth of 2.8% and 2.1% in 2020 in Saudi Arabia and Kuwait respectively. This comes on the back of oil GDP's growth in Saudi Arabia of 2.6%, reversing a drop of 2% in 2019, and growth in Kuwait of 1.45%, also reversing a decline of 1.7% in 2019. Meanwhile, they see non-oil sector growth of 2.4% in 2020, up from 1.55% in 2019 in the UAE as most expo projects wrap-up, driving an overall economic growth of 2.5%. Moreover, oil export growth on the resumption of normal crude oil production should help widen the current account surplus temporarily in 2020 which should increase by $17.4bn, $2.2bn, and $3.4bn in Saudi Arabia, Kuwait, and the UAE, respectively, besides higher tourism revenue accompanying the Expo 2020 Dubai in the UAE and other measures to open up the sector in Saudi Arabia to offer additional key support. In market conditions, Ahmed Hesham, vice president, financials, equity, and quantitative strategy at Beltone Financial, said that overweighing Egypt as rate cuts, better macro visibility, support to the industrial sector, and higher growth all offer strong upside to equities. He reiterated his view that the state's partial asset sales programme in 2020 can act as a catalyst to unlocking value in the market with an expected 1% to 6% upside to Egypt's market cap, improving liquidity, which is the key market challenge currently. Improved earning implies more value as Egypt offers the highest earnings per share (EPS) growth of 15.1% in 2020 and FEM markets versus a MENA average of 6.4% and FEM average of 6%, all in USD. Hesham added, "Kuwait is the second overweight market in 2020, which is triggered by its MSCI upgrade from Frontier Market status of Emerging Market. In terms of profitability, Kuwait's consensus EPS growth is expected at 9%, compared with a MENA average of 6%." Moreover, Hesham sees Saudi Arabia in their tactical play in 2020, primarily on the liquidity boost from the Saudi Aramco IPO and the expected strong EPS growth. Meanwhile, the increase in Saudi Arabia's weight in the MSCI index, following the total 5% stake sale of Aramco, to 4.4% from the current 2.6%, will imply passive flows of $9.5bn in the market. As for the UAE, although he expects Expo 2020 Dubai to provide breathing room to a weak macro scene in 2020, Beltone is neutral on the UAE's market as the impact on corporate has yet to be tested. Beltone analysts pick 18 stocks from their coverage of 62 stocks in the region including Domty, Eastern Company, MM Group, Edita, CIRA, EIPICO, Ibnsina Pharma, EK Holding, El Sewedy Electric, SODIC, Orascom Development Egypt, Export Development Bank, CI Capital, Credit Agricole Egypt, Extra, MEAHCO, Mouwasat, and Mezzan.
