Head of macro and financials at HC, Monette Doss commented: “Egypt's inflation remains largely contained towards the lower end of the CBE target range of 7% (+/-2%) for 4Q22, and we expect it to average 5.8% in 4Q21. We also believe that cooling-off international oil prices reduce inflationary pressures going forward. However, given our perceived pressure on Egypt's balance of payment (BoP), we believe carry trade remains essential for supporting Egypt's net international reserves (NIR). This is also demonstrated by the net foreign liability position of the Egyptian banking sector (excluding the CBE), which increased to USD4.8bn in October from USD3.9bn in the previous month. Accordingly, we perceive continued interest rate pressures on Egyptian treasuries. Going into 2022, we expect yields to cool off to correct for the current mismatch of risk-free rates being higher than corporate borrowing rates. While, at the moment, we expect any interest rate cut by the CBE to lead to further decoupling between the risk-free rate and the corporate borrowing rate. In the global context, according to Bloomberg estimates, interest rates in the USA and the Eurozone are expected to normalize over 2022 from current accommodative levels, with the US two-year note expected to increase to 0.9% from 0.3% in 2021. With Bloomberg average 2022-23e inflation estimates of 2.9% for the US, the real return would be -2.0%. This Is significantly lower than Egypt's real return of 3.3% given a 12M T-bill yield of 13.3%, our 2022e inflation forecast of 8.0%, and a 15% tax rate for US and EU investors. Turkey's real yields are also less attractive than Egypt's at 0.9%, given the one-year note interest rate of 14.2%, Bloomberg 2022 inflation forecast for Turkey of 13.3%, and zero taxes. That said, we believe that it is unlikely for the CBE to increase policy rates. We accordingly expect the MPC to keep rates unchanged in its upcoming meeting. ”

It is worth mentioning that, in its last meeting on 28 October, the Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the eighth consecutive time. Egypt's annual headline inflation came in at 5.6% in November, with monthly inflation increasing 0.1% m-o-m compared to an increase of 1.5% m-o-m in October, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).


About HC Securities:

HC Securities & Investment (HC) is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody, online trading and private equity through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.2bn. HC Asset Management, winner of the 2018 MENA Fund Manager Awards, now manages 8 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP6.8bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

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