The recent policy shifts are set to infuse the stock market with significant dollar liquidity. Government offerings are slated for the second half of the year, with foreign cash inflows anticipated to hit $10 billion by 2024's end. The drive to contain inflation continues to underpin ongoing monetary tightening. The Central Bank of Egypt's rigorous monetary stance, marked by an 800 basis-point rate increase early in 2024, casts a shadow of uncertainty over the stock market's trajectory. Yet, the pound's exchange rate flexibility is expected to usher in robust liquidity and foreign investments, particularly in government securities and sectors like banking and petrochemicals. A return to the interest rate swap market signals a positive turn for Egypt's financial institutions. Market analyst Medhat Nafei highlights the atypical effects of rate hikes on stocks, exacerbated by the pound's liberalization delays and dollar scarcities. The Commercial International Bank's response—leveraging stock purchases for dollar access—underscores the broader market trend. Nafei stresses that resolving market distortions hinges on bank-facilitated dollar liquidity, which would draw more investments, especially international ones, fostering direct economic growth. The stock market's agility aids in attracting investments without bureaucratic hurdles. The subsequent 600 basis-point rate hike aligns with efforts to curb soaring inflation, targeting the government's 7% goal. It also aims to lessen the inflationary pressures from exchange rate liberalization, addressing the disparity between official and parallel market rates. The Central Bank's next move focuses on managing dollar reserves strategically, allocating funds to essential commodities, production materials, and debt repayments, thereby influencing supply chains and curbing inflation. Amr El-Alfi, Head of Stock Strategies at Thndr Securities, foresees a favorable impact of rate hikes on liquid banks and firms. He predicts that exchange rate freedom will propel export-driven companies, with significant revenue and profit surges expected in the first half of 2024. The timing of these financial adjustments has rattled stock performance, spawning opportunities for tactical buying and selling. With the recalibration of interest and exchange rates, market-driven forces now dictate Egyptian asset valuation. El-Alfi envisions the completion of the government's divestment program, inviting strategic investments and public listings on the Egyptian Exchange later in the year. A key market anticipation is the resurgence of domestic and international investments, coupled with enhanced foreign currency access, to counterbalance any adverse effects from increased financing costs and import expenses. A surge in global interest in Egypt's local debt instruments is projected, likely boosting the returns required by investors. Alan Sandeep, Research Sector Lead at Naeem Brokerage, predicts that banks and export-centric firms will greatly benefit from the upcoming period's exchange rate liberalization and its associated performance flexibility. Banks are poised to gain from the surge in liquidity directed towards treasury bonds and bills, with expected returns surpassing 30%. Similarly, fertilizer and chemical exporters like Abu Qir Fertilizers, Mobco, Kima, and Sidi Kerir Petrochemicals, which generate over half of their revenues in dollars, are also set to profit. Sandeep anticipates a month-long wait for foreign investment in stocks and debt instruments as investors seek exchange rate stability, the narrowing of official and parallel rate disparities, and enhanced dollar access in banks. Once currency liquidity stabilizes and confidence is restored, a significant influx of 'hot money' is projected. Provided economic stability and favorable sector forecasts, investment-derived cash flows could reach the $10bn mark by the end of the year. Sandeep underscores Egypt's focus on closing the dollar gap, prioritizing the settlement of outstanding debts and obligations, and expediting customs clearance for essential goods, particularly pharmaceuticals and food items.
