Prime Investment bank said that floating the national currency is a great step that would push Egypt’s economy forward by eliminating the informal market and creating one price for foreign currencies, combined with decisions by the Supreme Council for Investment to help boost investments in Egypt.
The bank believes that the supply of US dollars is the most important factor in the short term. Exporters will benefit from the decision, though importers will be negatively affected due to the lower price of the Egyptian pound.
The stock market, however, will plummet due to the higher interest rate provided at the banks now, which may push investors to withdraw their money from the stock market, the bank said in statement released on Sunday.
Raising the interest rate is important in order to attract short-term investments, though these are not efficient for developing the country; therefore, the interest rate will be lowered again by the Central Bank of Egypt (CBE) at some point.
Due to the expected volatility of foreign currency exchange rates in the short-term, as a result of the flotation, coupled with the recent decision to phase out subsidies, it is expected that the economy as a whole and most of the listed companies on the Egyptian Exchange will pass through a difficult time in the short-term.
The statement said that “security selection” is the most important decision currently; hence, a “bottom–up” approach when seeking promising investment opportunities is required. Through utilising this approach, investors will be able to exploit individual companies that can perform well even though its sector or industry is performing badly. In other words, if the fundamentals are good, the stock has potential regardless of outside factors, the bank said. It added, however, that a bottom-up approach requires thorough research for a comprehensive understanding of a company’s business.