EM PM, Ecstrat

Emad Mostaque

EM PM

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Thematic (Sector/Industry)

Egypt Financials / Thematic (Sector/Industry)

One gets the feeling all sorts of intriguing news is due to pop up in the next week into US elections, with today’s notes of interest being Egypt’s devaluation and the Brexit court commentary (we are point 7 in <a href="https://www.smartkarma.com/insights/the-path-to-no-brexit" target="_blank">my proposed timeline</a>). I would say there is a good chance of Nigeria following suit in devaluation next week, much needed as oil prices roll over as production outages subside (still bullish for next year, but it looks ugly here unless something changes sharpish).The Egyptian devaluation was not unexpected, but the market was probably in the 11/$ range and so they have surprised to the upside. This will put significant social pressure on society and we could potentially see unrest as Sisi’s support continues to diminish.Lower oil prices have allowed Egypt to kick this can further down the road than I expected, but were a doubled edged sword as it also reduced the ability of Egypt’s Gulf allies to support it. One notably recent development is the sharp increase in trade with China and the $2.6bn currency swap line opened up ahead of this devaluation: Egypt has started to spread its alliances wider than before, which is very positive, but has caused some frictions with existing relationships.From a market perspective this is very positive as the support already lined up should stabilise the currency around current levels for the next year or so, offering significant carry and assets at a discount to fair value.

One gets the feeling all sorts of intriguing news is due to pop up in the next week into US elections, with today’s notes of interest being Egypt’s devaluation and the Brexit court commentary (we are point 7 in my proposed timeline). I would say there is a good chance of Nigeria following suit in devaluation next week, much needed as oil prices roll over as production outages subside (still bullish for next year, but it looks ugly here unless something changes sharpish).The Egyptian devaluation was not unexpected, but the market was probably in the 11/$ range and so they have surprised to the upside. This will put significant social pressure on society and we could potentially see unrest as Sisi’s support continues to diminish.Lower oil prices have allowed Egypt to kick this can further down the road than I expected, but were a doubled edged sword as it also reduced the ability of Egypt’s Gulf allies to support it. One notably recent development is the sharp increase in trade with China and the $2.6bn currency swap line opened up ahead of this devaluation: Egypt has started to spread its alliances wider than before, which is very positive, but has caused some frictions with existing relationships.From a market perspective this is very positive as the support already lined up should stabilise the currency around current levels for the next year or so, offering significant carry and assets at a discount to fair value.

Haitong Securities Co Ltd (A) (600837 CH)

Samsung Fire & Marine Insurance (000810 KS)

Shanghai Pudong Development Bank Co. (600000 CH)

Mega Financial Holding Co., Ltd (2886 TT)

China Merchants Securities Co Ltd (A) (600999 CH)

China Pacific Insurance (Group) Co., (601601 CH)

Changjiang Securities Company (000783 CH)

China Merchants Securities Co Ltd (H) (6099 HK)

ICICI Prudential Life Insurance (IPRU IN)

Egypt Devalues - Now the Hard Work Starts