Needless to say how interesting the past weeks have been for those of us who live, work and invest in North Africa. Our regular readers know that we saw the events in North Africa as likely catalyst for an ‘upgrade’ of the political systems across the developing markets, especially those in Africa, the Middle East and Central Asia.
Egypt is gradually moving back towards life as usual and we are seeing a pragmatic evolution towards a new order. The fact that the constitution will be amended confirms that there is now an effective democracy at play in Egypt. The various political players have been in dialogue and we are getting the impression that the central bank is very focused on ensuring financial stability in these adverse times.
Egypt’s stock market remains closed and it seems that the market is set to partially resume trading on Sunday. There is much anticipation about the initial direction of the market. Both the market and the currency will probably be volatile in the short term but the newfound institutionalization of the financial sector will eventually support the value of the Egypt in the medium term. When more rational trading takes hold, we will possibly be seeing a good discount to build attractive medium/long term positions in Egypt.
We especially favour industrials, in particular those that are large exporters, they still have the competitive advantages working in their favour, it is also away to offset a possible decline in the EGP. In the same vein, selective oil and gas plays make much sense to us at the moment. The Agriculture and food industry should see an exceptional level of government support. Telecom use has jumped to higher levels and the pharmaceutical industry could be set to continue to enjoy higher profitability levels that its regional peers.
Tunisia has gone back to business and Morocco has so far proven those that feared contagion wrong. We observe that it is very unlikely that Moroccan society will revolt. This is mainly thanks to abundant rainfall and a good harvest combined with government efforts to avoid spikes to high food inflation.
Rising food prices were arguably one of the sparks that set off the recent political wildfire. We have also often highlighted that the Moroccan authorities have been on a clear drive to improve infrastructure and have intensively been executing initiatives towards increasing living standards through social housing. There has already been profit taking in Morocco, so the most of the ‘nervous’ money may have already exited. Those familiar with this market know that it floats on a quite a solid support from local institutional investors.
As we have been pointing out during for the past few weeks, the social action we have seen could imply a quantum leap towards more political reforms across the region. We may be looking at a paradigm shift in terms of global politics. In the coming months, we could likely be impressed by how rapidly the shift to leadership structures towards higher standards can actually occur. Some of the contagion that was feared has actually already happened, albeit in a positive way, if you consider that other leaders in Algeria, Jordan, Kazakhstan and Yemen, have been seen taking steps towards reform.
Undoubtedly, most of the millions of citizens that live in these rising economies are very keen on further progress and now that they have an avenue, it is a force that should not be underestimated. Recently, amidst the confusion, we posted a note from Hesham Saad, our Cairo-based investment director, you may find it a refreshing contrast with what the blood-thirsty news channels had to say during those days: Beyond the Smoke and the Chaos
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