After the Central Bank of Egypt (CBE) surprisingly tightened its monetary policy last week by raising interest rates, banks and real estate stock are on the “Top Pick” list chosen by a pool of analysts interviewed by Daily News Egypt.
The CBE’s Monetary Policy Committee surprisingly raised last week the benchmark of the overnight deposit rate by 200 basis points, or 2%, to 16.75%, the bank said late Sunday.
In the wake of the move, Egypt’s shares tumbled by its fastest pace in months, while real estate and banking stocks bucked the trend and closed almost unchanged.
For Cecilia Jlin, a fund manager at Franklin Mena, Egyptian shares are among the best in the region to inject cash in.
“Prices are attractive to buy at this level, a fresh sell-off from local investors could be offset by a purchase streak from foreign and Arab investors,” Jlin told Daily News Egypt.
“Banks and the real estate sector are among the best to pick at this time,” she explained.
The banking sector index was the only gainer, alongside the real estate sector’s last week.
A recent research note issued by Arqaam Capital expected Egypt’s bank to benefit most from the interest rate hike.
“The banking sector is to benefit most, despite potential lowdown in credit extension and credit related fees, and some impact on asset quality. Banks benefitted also from a substantial balance sheet growth last year, thanks to translation gains that boosted asset and deposit growth,” Arqaam explained.
Last week, the heavyweight Commercial International Bank (CIB) Egypt was among the top gainers in Cairo bourse, rising 2.9%.
“Banks are mostly geared for higher rates, with positive repricing gaps, but bad debt charges may rise, and banks are very well provisioned and have ample operating earnings capacity to absorb those changes,” Arqaam noted.
Meanwhile, shares in the real estate sector are also among the top picks by analysts in the medium term.
“Real estate shares are being favoured at this time to hedge from rampant inflation rates,” Craig Plumb, a senior analyst at JLL real estate consultancy told Daily News Egypt.
Egypt’s headline inflation hit an annual rate of more than 30% in April, with food prices climbing at least 3% for six months in a row.
The real estate sector index has gained most among Egypt’s bourse sectors since the start of 2017, rising 9.8% according to bourse data.
“Investors are expected to pump more cash in all real estate assets; among them are stocks, especially for shares of big developers,” he confirmed.