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Wed 8 Jul 2020 04:00 PM

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Egypt's expats become opportunity for $61bn fund manager

Azimut's Luxembourg-based fund will initially allocate $50 million between as many as 25 Cairo-traded stocks

Egypt's expats become opportunity for $61bn fund manager

Egypt’s 100-million population and the purchasing power of its consumers have the potential to fuel growth for companies as the economy emerges from its coronavirus lockdown.

Egyptian stocks have attracted the attention of Azimut Holding, with the $61 billion money manager targeting the North African country’s diaspora through a new equity fund.

Azimut’s Luxembourg-based fund will initially allocate $50 million between as many as 25 Cairo-traded stocks. Egypt’s 100-million population and the purchasing power of its consumers have the potential to fuel growth for companies as the economy emerges from its coronavirus lockdown, according to Ahmed Abou El Saad, managing director of the Italian firm’s local unit.

Egypt has already proved an investor darling in the bond market. The country in late 2016 negotiated a three-year International Monetary Fund deal, securing a $12 billion loan as it steeply devalued its currency and cut subsidies. The moves helped rekindle appetite for the debt, battered in the aftermath of the 2011 uprising. Milan-based Azimut is testing whether equity investors are ready to follow suit.

After a hit to equities this year that was more than five times worse than the average for emerging markets, valuations on Cairo stocks are relatively inexpensive, Abou El Saad said. That may draw investors, including thousands of Egyptians who work abroad and may be keen to increase their exposure to the market, he said.

Azimut, Italy’s largest independent money manager, opened Azimut Egypt Asset Management last year, following the acquisition of a local investment firm. It has a staff of 25, with 10 of those on the investment team.

Here are more of Abou El Saad’s comments from a telephone interview:

  • The Egyptian economy is seen as “very resilient” post-Covid 19, with Azimut still expecting growth for this year of 3-3.5%. “That’s because 80% of GDP comes from local consumption, and you have population growth that boosts consumption, by nature.”
  • Remittances from Egyptians abroad were close to $30 billion last year, with 70% coming from the Gulf, mostly the United Arab Emirates, Saudi Arabia and Kuwait, Abou El Saad said. “We want to attract the Egyptian expats that seek to have exposure to the Egyptian equities market.”
  • Many markets display a disconnect between climbing stock prices and faltering economic prospects. “That also happens in Egypt, but the other way around - valuations are far below the financial performance of the companies.”
  • He sees major themes for investment as local consumption and population growth. “Egypt is an under-served market in various sectors, such as consumer, education and health.”

On currently paused plans to sell shares in state companies, he said he favours initial public offerings over further stake sales by listed entities. “I really hope the government can resume the programme with new listings, not by selling shares in already listed companies.”

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