CI Capital’s 3rd Annual MENA Investor Conference

Hunting for Opportunities

...

Four Seasons Nile Plaza, Cairo, Egypt

From January 13th to January 16th, 2019


The Plaza, New York, USA

From January 22nd to January 23rd, 2019

Investors Registration Corporate Login

Consistently Focusing on Long Term Value





Our objective

Our objective for investing in the region in 2019 is to formulate a dynamic investment strategy for investors to achieve the highest returns, through manouevring the risks and focusing on top opportunities with low correlation to the currently volatile economic and financial environment. The past 2-3 years have witnessed fundamental global changes. These include a global monetary tightening stance, adopted by major central banks, high oil price volatility, mainly driven by political tensions and changes in supply/demand dynamics, and an emerging markets landscape experiencing possible contagion effect from vulnerable economies. The migration of capital from EM to developed markets is ongoing.

We believe that our markets' correlation with the EM universe will continue unless individual economic stories drive countries to outperform.

Our strategy

Our strategy focuses on offering macro/thematic and sector-specific analyses to pinpoint stocks expected to outperform amid such continuous changes. For markets under coverage; Egypt is expected to resume its easing cycle in 1Q19, as EM tensions begin to retrench. Lower interest rates would kick start a domestically growth-driven story, as liquidity would be channeled to private corporates, triggering the revival of the capex cycle for the first time since 2011. Saudi Arabia has embarked on key investment and sectoral reforms, such as legislative and capital market reforms, and privatisation. These, along with the MSCI status upgrade of the market, should set the Kingdom on the right track of recovery. In the UAE, higher oil prices, fiscal stimulus, and potential in cultural tourism are positive for Abu Dhabi. In Dubai, kicking off Expo 2020-related projects would be the market’s key driver for growth. As for Kuwait, the New Kuwait National Development Plan is a pillar for the country’s activity starting 2019, as it entails a strong focus on infrastructure spending and public administration reforms.

Higher oil price volatility positive for some, challenging for others!

The new oil price norm is volatility. Brent prices reached USD86bbl in October before falling off to USD60bbl in late November, a steep 30%. This comes right after Brent was almost 80% higher in October than the levels seen 3 years back. Geopolitical tensions, trade wars, changing supply/demand dynamics are factors to consider. As the majority of markets under our coverage are oil exporting countries, this could pose a challenge to their fiscal and external balances, as well as their growth dynamics, especially following a period of aggressive fiscal consolidation. At the same time, it is a relief for Egypt, the only net oil importer within our coverage, which is undergoing a full-fledged subsidy reform program, to preserve social benefits and catch up with cost recovery goals. Lower risk of fuel price adjustment in Egypt supports the view of monetary policy easing to recommence in 2019.

Global monetary tightening; not a game changer to MENA monetary dynamics

Global monetary tightening has a different impact on our markets. This cycle was initiated by the Fed in 2015, followed by major central banks; the Bank of England had its first hike in end-2017, its second by 3Q18, while the European Central Bank is expected to end its QE by end-2019. Gulf countries will continue to follow suit, reflecting marginally on cost of funding, given their peg. Egypt, however, still maintains a high interest spread and the noticeable outflows were more driven by higher risk aversion than impact from Fed hikes. To date, USD10bn left Egypt's capital market and still the Central Bank of Egypt is reluctant to hike policy rates, backed by a solid FX position and reserves. We believe the region will continue to correlate with the global tightening conditions, except for Egypt, for which easing is a key awaited catalyst.

EM debacle, MENA the least vulnerable

We believe markets under our coverage are the least vulnerable compared to other EMs, due to having strong financial buffers adequate to withstand such an environment. Saudi Arabia has cUSD510bn in reserves to help maintain the peg and finance short-term outflows. Similarly, the UAE and Kuwait have cUSD90bn and cUSD38bn, respectively, in addition to the sovereign funds. Egypt is currently also well-positioned, with reserves of cUSD45bn, a strong central bank NFAs position, and an estimated USD8bn outside reserves to cover any further outflows. This comes in contrast to other EMs (Argentine, Turkey, Brazil, Pakistan and Indonesia) that have been relying heavily on short-term financing amid weakening BoP dynamics.

Spending and investment re-positioning

Egypt is showing early signs of gradual consumption recovery, as the adjustment cycle to disposable income and asset pricing progresses. Unemployment is down to a 7-year low of 10%, but lower cost of borrowing remains key to driving investment and further reducing unemployment, as well as improving the standard of living. Fuel subsidy reforms will continue, but reallocating savings to low income groups will dilute the impact on spending. Saudi Arabia is following suit, with the Citizens Account Program a key policy, tailored specifically for this purpose. Reinstating allowances and bonuses for public employees in the Kingdom is also beneficial to consumption, but Saudisation and outflow of foreign labour remain key challenges. The impact on the latter is evident in the decline in property rentals and prices. Additional common drivers for economic activity across the UAE, Saudi Arabia, and Egypt include: i) public spending on infrastructure, ii) national projects, and iii) housing initiatives. This comes particularly in light of the awaited Expo 2020 in the UAE, national housing project in Saudi, and progression of infrastructure development reforms and the New Administrative Capital in Egypt.