Egypt’s local liquidity continued its upward trend, advancing by 103 billion EGP
For our top talks today, Egypt’s local liquidity continued its upward trend, advancing by 103 billion EGP or 1.9% month-on-month recording 5.36 trillion EGP in June, hitting its highest level ever recorded, compared to 5.257 trillion EGP. Here, it is worth mentioning that the liquidity needs of the financial system affect the real-economy sector that generates liquid assets. Liquid assets are always needed to deal with any unexpected short-term crisis. Moreover, funds shortage leads to spike in short-term borrowing rates, which block banks from cutting lending rates. This also results in a rise in bond yields. If the benchmark bond yield rises, corporate borrowing cost too, increases.
- With this in mind, the US-based credit ratings Moody’s has confirmed its credit rating for Egypt at B2, with a stable outlook. This rating balances Egypt’s “significant shock exposure” with its successful track record of overcoming volatility.
We believe that Egypt now has a better buffer against large capital outflows due to the recovery of FX reserves, however, it remains exposed to shocks in terms of both liquidity and external financing. Egypt also has one of the world’s weakest debt positions when measured by interest, revenue and interest, and GDP.
- On the other hand, the country’s vulnerability to funding shocks is getting worse impacted by higher gross borrowing need, which currently amount to 35% of GDP.
However, Egypt’s large banking sector alleviates funding risks on the back of the Ministry of Finance’s shift to long-term debts, which have been extended to 3.45 years as of June 2021 from 1.3 years before June 2021.
- By the same token, it is worth noting that Egypt is looking forward to attract further foreign investments, particularly in the most attractive sectors, including energy, petrochemicals, medicine, telecommunications and information technology, iron and steel, and transportation.
Moreover, Ministry of Finance is seeking to attract new segments of foreign investors, including Indians, to the Egyptian securities market. Also, the Prime Minister reviews the implementation plan for the strategy of maximizing yacht and ship tourism. We believe that this type of tourism represents a great added value for tourism in Egypt, especially with the country's beaches extending on the Mediterranean and Red coasts of Bahrain, stressing on the importance of facilitating and simplifying all procedures in the entry and exit stages of incoming tourist.
- Moving to companies talks, Al-Temsah shipbuilding company, one of the Suez Canal companies, signed a joint-stock agreement with Healthy Milk and Healthy Family yesterday, to establish an Egyptian joint-stock company "Suez Canal Healthy Food Industries Company" to implement businesses and projects related to food industries.
Noting that the new company aims to participate in the implementation of the presidential directives to achieve food security and bridge the nutritional gap in animal protein.
- Equally important, four brokerage firms grabbed 90% of the trading value of transactions on the Egyptian Stock Exchange last July, led by the EFG Hermes, acquiring 75.2% on its own with a trading value of 20.6 billion EGP.
And Cairo Capital Securities ranked second with 6.6%, with a turnover of 1.7 billion EGP. In third place came City Capital for Securities Trading, with a market share of 5%, with trading values of 1.3 billion EGP, and fourthly came Al-Fath for Securities trading, with a market share of 3.7%, with trading values of 1 billion EGP.
- In the light of investments talks, first, Kuwait's Mobile Telecommunications Company (Zain) will invest in the newly-formed business combination between the Dubai-based ridesharing app Swvl and Nasdaq-listed Queen's Gambit Growth Capital, the first special purpose acquisition company led by women.
Zain will subscribe for 10 million USD in this transaction. Worth noting that during the first half of 2021, Zain recorded a 5% year-on-year rise in its net profits recording 86 million USD.
- Second, Raya Holding for Financial Investments is planning to pump investments worth between 700 to 800 million EGP during 2021, while mainly expanding in the financial inclusion sector through the non-banking financial services and manufacturing industries as well.
This is in line with its aim of expanding in the US market over the coming period through the establishment of a new company and maximizing its business volume in Saudi Arabia over the coming period, as previously mentioned in our last week talks.
- Moving to US-Germany story abroad, the most important result of the recent meeting between the two countries regarding the US-German agreement on Nord Stream which is an underwater pipeline that will transport Russian gas to German, was the US’s dropping of its opposition to the Nord Stream 2.
It is worth mentioning here the reason behind this opposition. The US was strongly opposed to that project; Because, first, it increases Europe's dependence on Russian energy sources, and in this way strengthens Russia in any dialogue or negotiations it has with the West. Secondly, because a number of US allies from countries that were part of the Soviet Union during the Cold War, such as Ukraine, see this line as a threat to them.
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