EEgypt
AW
Welcomee Change to the Currency Reegime
Sharat Dua,
D Lead Porrtfolio Advisor, Magna Africca Fund
highlightts the investm
ment opportunity provided by
b this long-awwaited devaluuation
25 Noveember 2016
5 fall in itss
On 03 Novembeer the Egyptiaan pound waas allowed to float freely, leading to ann immediate 50%
valuue against thhe US dollar. We believe tthis event to be a game changer
c
for thhe economy, providing ann
attrractive entry point
p for equityy investors.
me had previoously been a managed flooat, but that mmanagement had becomee
Thee Egyptian cuurrency regim
more rigid and disruptive
d
in recent years.. Between January 2011 and
a October 22016, the Egyptian poundd
wo revolutions, a stalling off
lostt only 35% off its value aggainst the US dollar, a perriod that encoompassed two
ecoonomic growtth, heighteneed geopoliticaal risk in the region, and a wider collaapse in emeerging markett
currrencies. For context,
c
in thee same periodd the South African
A
rand, Brazilian
B
real aand Russian rouble all lostt
appproximately 600% of their vaalue.
Froom March of thhis year the pound had beeen fixed at 8.888 to the dollaar, with importt bans and caapital controlss
in pplace helping to preserve this
t artificial leevel. Equity innvestors suchh as ourselvess were unablee to repatriatee
funds. There was
w huge scaarcity of harrd currency, with the ressult that a thhinly-traded black
b
markett
w materials innto the countryy.
devveloped, with corporates foorced to acceess this in ordeer to bring raw
me form of deevaluation beccame inevitabble, but its maagnitude has come as a suurprise. For noow it appearss
Som
that we have a fuully floating reegime, with thhe pound droppping to over 17 to the dol lar. It is still finding a level,,
h
over the
t market. MMany economiists argue thee
butt it is clear thaat a large devvaluation risk iis no longer hanging
pouund has overshot and is now
n one of thhe cheapest currencies
c
gloobally. Alongsside the devaaluation, locall
inteerest rates weere increased by 300bps, ffinancial suppport was secured from Sauddi Arabia, China, UAE andd
Germany, and an
a IMF packaage has beeen agreed witth the first traanche paymeent received. A eurobondd
issuuance is alsoo expected shhortly. Thus thhe authorities have finally taken a compprehensive seet of steps too
takee the econom
my forward.
Inevitably there will be pressures – inflatioon will spike, consumer exxpenditure willl be under sttrain, and thee
govvernment will be compelleed to support the most vulnerable by sttrengthening the social saafety net – forr
insttance cash suubsidies for loow income grooups to spendd on food andd fuel have beeen increasedd. These riskss
werre building annyway while the
t exchangee rate was peegged. Now at
a least there are incentives and meanss
for corporates too invest, and we expect tto see a markked pick-up here.
h Egyptiaan corporates have under-A Spring, Muslim Brothherhood misrule, army coupp, and then FXX restrictions,,
inveested for yearrs due to the Arab
withh the result that
t capacity upgrades aand expansions are long overdue. Inteernational corrporates mayy
sennse the opportunity to pickk up undervaalued assets at
a half their previous
p
pricee. We also exxpect wealthyy
Egyyptians, who have
h been ussing the blackk market to takke money out of the countryy, to reinvest.
t Egypt via CCharlemagne Capital’s Maggna Africa Fuund. Over 20%
% of this Fundd
Inveestors can gaain exposure to
is ccurrently inveested in Egyppt, a market which retainss many positive features ddespite the challenges
c
off
reccent years. A population of
o around 90 million, mainnly young, and growing att 2% to 3% per
p annum iss
struucturally very attractive. Eggypt remains a strategicallyy important country from a geo-politicall perspective,,
as seen by the support
s
it hass received in the recent paast, and the economy
e
has much to catcch up, havingg
2 to 3% sincce 2011, comppared to the 5%
5 to 7% of thhe preceding 15 years.
groown at an average of only 2%
Thee Fund’s holddings include high quality banks, such as CIB, delivvering sustainnable returnss on equity off
aroound 30% andd now poisedd to grow thee balance sheeet at up to 40%;
4 and seccular defensive consumerr
nam
mes, such ass London-listeed diagnostic testing provider Integrateed Diagnosticcs Holdings, the dominantt
player in a high growth market. Other stoccks, such as investment baank EFG Hermmes, gold miner Centaminn
d earningg
andd the engineeering and connstruction conntractor Orasccom Construcction have siggnificant US dollar
streeams and asssets, and thereefore offer reaasonable prottection againsst the effects oof the weakerr pound.
Forr investors in African equitties the past two years haave been extremely challennging, with known risks off
devvaluation in Egypt
E
and Niggeria, two of tthe largest Affrican marketss. With Egypt now finally thhrough to thee
other side, we caan look forward optimisticaally to improveed returns.
This document is issuued by Charlemagne Capital (UK) Lim
mited, which is authhorised and regulated by the Financiaal Conduct Authority.
Adddress: Charlem
magne Capital (UK) Limited
39 St James’s Street
London
SW1A 1JJD
Tel:
Fax:
Email:
Website:
+ 44 (0)20 7518 2100
+ 44 (0)20 7518 2199
[email protected]
www.charlemagnecapital.com
Thisis document may not bee disclosed, distributed, copied, reproduced orr used (in whole or in part) for any purpose withoout the express written cconsent of Charlemagnee Capital (UK) Limited
(“CCharlemagne”). Charlem
magne has been appointed
n by Magna Umbrellla Fund plc (the “Comppany”) to procure the distribution
d
of its Sharess. The Company is an open-ended
o
umbrella
inve
vestment company authoorised by the Central Baank of Ireland as a UCITTS. Charlemagne Capittal (UK) Limited is authorised and regulated by the Financial Conduct Authority
A
(“FCA”). The
Com
ompany has sought andd has been granted appproval by the relevant reregulatory authorities to market and distribute itss Shares as appropriatee in the following jurisdicctions: UK; Germany;
Luxxembourg; Austria; *Swiitzerland; The Netherlands; Denmark; Singaporere; France, Finland, Sweeden and Italy. In Canadda, the distribution of thiss document and any othher document relating
to tthe distribution or markeeting of the Company (including
n
the Prospectuss relating to Company), is made and will be madde only to accredited invvestors (as defined in National
N
Instrument 451066 – Prospectus and Reegistration Exemptions) or
o pursuant to another aapplicable prospectus exemption. Full information on the regulatory ststatus and the applicablle laws relating to the
maarketing and distribution of the Company’s Shaares in the various jurisddictions in which the Coompany is registered arre more particularly set out in the Prospectus ofo the Company. The
purrchase of shares in thee Company constitutes a high risk investment aand investors may losee a substantial portion oro even all of the money
ey they invest in the Coompany. Investors are
advvised to read the sectionn of the Prospectus entiitled “Risk Factors” priorr to investing in the Com
mpany. The information within
w does not constitutee investment, tax, legal or
o other advice and is
nott a recommendation or an
a offer to sell nor a solicitation
i
of an offer to buuy Shares in the Compaany, which may only be made on the basis of ththe Company’s Prospecctus. An investor in the
Uninited Kingdom who ente
ters into an agreement to acquire Shares in tthe Company will not have
h the right to canceel the agreement underer any cancellation ruless made by the FCA.
Chharlemagne reasonably believes
b
that the informaation contained herein is accurate as at the datee of publication but no warranty
w
or guarantee (eexpress or implied) is given
v as to accuracy or
com
mpleteness. The informaation and any opinions expressed
e
herein may cchange at any time. Thee Prospectus of the Com
mpany shall not be distrtributed and Shares in thhe Company shall not
be offered, distributed or sold in any jurisdictionn in which such distribuution, offer or sale wouuld be unlawful. Prior too investing in the Comppany, investors are advvised to contact their
inddependent financial addviser and should readd all documents relatinng to the Company thhat may be obtained from the Administratoor, the Share Distributoor or the website of
wwww.fundinfo.com. This doocument includes statem
ments that are, or may be deemed to be, “forwward-looking statementss”. These forward-looking
ng statements can be identified
d
by the use of
forwward-looking terminologgy, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “willl” or “should” or, in eacch case, their negative or other variations or
com
mparable terminology. These forward looking statements include all mmatters that are not historical
s
facts. They apppear in a number of plaaces throughout this doocument and include
statements regarding the intentions,
in
beliefs or currrent expectations of Chaarlemagne concerning, amongst other things, thhe investment objectives
es and investment policyy, financing strategies,
inve
vestment performance, results
r
of operations, financial
n
condition, prosppects, and dividend poolicy of the proposed innvestment vehicle andd the markets in which it, and its portfolio of
inve
vestments, invest and/or operate. By their naturee, forward-looking statemments involve risks and uncertainties
u
because thhey relate to events andd depend on circumstannces that may or may
nott occur in the future. Forrward-looking statementts are not guarantees off future performance. Thhe proposed fund’s actuual investment performan
ance, results of operationns, financial condition,
divividend policy and the deevelopment of its financiing strategies may differer materially from the imppression created by the forward-looking stateme
ments contained in this document.
d
There is no
asssurance the Company will
w achieve its investmeent objectives or the targget returns described in the document. *The prospectus
p
for Switzerlannd, Key Investor Information Documents, the
articicles of incorporation, thee annual and semi-annuual reports, as well as thhe list of the buying andd selling transactions caan be obtained free of ch
charge from the represeentative in Switzerland,
Car
arnegie Fund Services S.A.,
S 11, rue du Généraal-Dufour, 1204 Genevaa, Switzerland, Tel. +411 227051177, Fax: + 411 227051179, www.carnrnegie-fund-services.ch. The paying agent is
Bannque Cantonale de Gennève, 17 Quai de l'Ile, 12204 Geneva, Switzerlandd.