MARKET WATCH: Green All Over
MARKET WATCH: Green All Over
STOCK ANALYSIS: Faisal Islamic Bank of Egypt (FAIT)
Written for Business Monthly - January 2023 Issue
MARKET WATCH
Another 20-plus positive performance from Nov. 15 to Dec. 15 was enough for the EGX 30 index (up 24.8%) to extend its year-to-date gain into its year high. However, this time the EGX70 EWI (+24.7%) tagged along. Both the EGX 30 (26.7%) and EGX 70 EWI (30.1%) were up on a year-to-date basis. During the period, advances outnumbered declines by 6 to 1, with the market primarily painted green.
That reflects the breadth of the market’s upward trend that started following the second devaluation of the year of the Egyptian pound on Oct. 27. The EGX 30 jumped 43% since then, extending its long-term trend that started Jul. 5 to a whopping 75% return in just over five months. Granted, a weaker pound makes Egyptian assets cheaper, as in November 2016, the EGX 30 hit an all-time intraday high of 18,414.11 on Apr. 29, 2018.
Stocks that benefited from a stronger U.S. dollar spanned different sectors, from banks and exporters to logistics and commodity-linked shares.
Faisal Islamic Bank of Egypt (FAIT, up 68%) and Commercial International Bank (COMI, up 27%) should benefit; the former would revalue its dollar-based capital and the latter would revalue its net foreign currency position. Other companies that conduct a sizable portion of their business outside Egypt also should benefit, like Elsewedy Electric (SWDY, up 45%) and Orascom Construction (OCIC, up 30%). Also, exporters such as Oriental Weavers Carpet (ORWE, up 44%) and Dice Sport & Casual Wear (DSCW, up 48%) eventually would see higher cash flows.
In logistics, companies that price their services in dollar terms should report higher revenues. Hence, Alexandria Container Handling Co. (ALCN, up 41%) should see its already high profitability margins expand further. Similarly, Canal Shipping Agencies (CSAG, up 40%), which owns 20% stakes in two other container handling companies, would benefit. Meanwhile, commodity-linked stocks will be able to reprice their products higher. This list includes Alexandria Mineral Oils (AMOC, up 52%), Delta Sugar (SUGR, up 40%), Misr Chemical Industries (MICH, up 34%), Abu Qir Fertilizers (ABUK, up 32%), and MOPCO (MFPC, up 25%).
More recently, the Central Bank of Egypt surprised the market by hiking interest rates by 3% at its Dec. 22 meeting. With 8% in total hikes in 2022, the market will weigh its options. Companies likely will see earnings pressured, given higher financing costs. On the other hand, the EGX 30 is still 18% below its all-time high and down 40% in U.S. dollar terms, which means stocks haven’t recouped their losses in nearly five years. The result may mean short-term weakness along with a long-term upward trend.
STOCK ANALYSIS
Faisal Islamic Bank of Egypt (FAIT)
One of three EGX-listed Islamic banks, Faisal Islamic Bank of Egypt (FAIT), is always a vital beneficiary of a stronger U.S. dollar. Part of the bank’s capital is in dollars, so any strength in the greenback against the Egyptian pound eventually shows up on the bank’s income statement as a foreign exchange gain. Following the second EGP devaluation in 2022, FAIT’s stock skyrocketed 68% after closing higher in 18 of the 22 trading sessions, with more than 3 million shares worth EGP70 million changing hands.
