Essam Khalifa, the managing director of Al Ahly Fund and Portfolio Management Company, sat down for an interview with Daily News Egypt to discuss the economic situation in 2017 and growth opportunities for various funds. He believes that the increase in the dollar price is credited with the restoration of the foreigners’ investments in the Egyptian Exchange (EGX) and the achievement of huge profits for the investors in the recent period.
Mahmoud Naglah, executive manager of money market and fixed income funds at Al-Ahly Company, also spoke to Daily News Egypt about the expectations of the interest rate and its effect on the economic performance in general, as well as on money market and fixed income funds.
What is your expectation for the Egyptian economy in 2017?
Khalifa: I expect the US dollar shortage crisis to continue affecting the economic situation negatively with the continuation of the weakness of dollar resources. This had resulted from the retreat in the revenues of the Suez Canal, the weakness of Egyptian exports, and limited direct foreign investments. However, we may see the economy recover in the last quarter of this year, backed by the restoration of Russian tourism in Egypt, which will encourage other nationalities to resume their visits to Egypt. I also expect the tourism sector to lead the reform movement.
How do you see the repercussions of the foreign exchange rate issue for the situations in Egypt?
Khalifa: Although the retreat in the Egyptian pound’s price against the dollar has been a disaster for the people and is the main reason for the increase in inflation rates, it is credited with the rise in the EGX. The decrease in companies’ value resulted from a decrease in the Egyptian pound’s price which has made them more attractive for investors. This has manifested in the intensive purchases by foreign investors in the recent period and has played the major role in the rise of the EGX and the increase of trade volumes.
Do you expect the EGX to continue rising in 2017?
Khalifa: As long as the dollar maintains its increases against the Egyptian pound, the EGX will remain attractive for foreign investors and consequently will continue its increases to higher levels, as the foreigners’ purchases now are the strongest pillar in supporting the market’s performance. I expect the market to reach 16,000 points; however, once the dollar’s price retreats against the pound, foreigners will be inclined to sell in order to benefit from the differences in the currencies’ prices, because continuing purchasing shares while their prices are increasing and the prices of these investors’ currencies are decreasing will pose a threat to their profits.
What is your advice to investors?
Khalifa: Selective purchasing is necessary; it should be based on good financial analysis of the strong shares that have good growth chances, such as those companies that have benefited from the flotation, those that have good balances in foreign reserves, and also the companies backed by a large number of land plots under development, or shares of companies which are focused on exporting and consequently do not suffer from the foreign currency shortage crisis, in addition to the shares of industrial companies in general. Also, these shares must be purchased carefully, because we do not know when foreigners will switch to selling, which will lead to decline in the market.
How do you see the funds’ growth opportunities in the current time?
Khalifa: I see that growth opportunities will mainly benefit index funds; that kind of fund attracts foreign investors who prefer to purchase a fund’s certificates that represent the entire Egyptian market instead of following and buying specific shares.
Closed-end funds also have good growth chances, and I call to expand their establishment. Out of experience, Al-Ahly has been successful in managing such funds through the financial sector fund which has shown strong performance. The size of that fund’s investments increased in 10 years from EGP 190m to EGP 450m; moreover, it distributed EGP 556m.
Closed-end funds do not have to face the pressures of certificate refunding, as they are closed, which means that they do not receive any subscriptions or refunds.
What are the reasons behind not having real estate investment funds in Egypt?
Khalifa: Although the regulations have been amended by the Egyptian Financial Supervisory Authority, the economic situation in general is not encouraging to invest in that kind of funds.
What is the expansion plan of Al Ahly during this year?
Khalifa: We are planning to expand in managing portfolios, especially those of institutions. We are also looking into establishing an index fund. As for the other kinds of funds, we may wait for the economic situation to improve first before considering expanding in them.
What are your expectations about the interest rate in 2017?
Naglah: I expect the Central Bank of Egypt to increase the interest rate this year to curb inflation. We are now suffering from the most dangerous kind of inflation, which differs a lot from previous inflations. In normal situations, inflation is a result of an increase in demand; however, this time inflation is driven by supply as that supply is facing a crisis because of the significant increase in prices because of the dollar shortage and the critical economic circumstances. As a result, the price increase is continuing, while the demand on products is retreating.
I also believe that increasing the interest rate will contribute to collecting the liquidity from the market and further reducing demand, which may contribute to solving the inflation crisis.
How do you evaluate the way the government is handling the dollar crisis?
Naglah: The government has managed to decrease imports and consequently support the foreign exchange reserves. Also, it is intensifying its efforts to attract as much direct foreign investments as possible, through which it will compensate the government spending that is expected to decrease this year with the aim of decreasing the budget deficit and meeting the requirements of the International Monetary Fund (IMF). The IMF has demanded strict economic measures, including decreasing the country’s budget deficit.
How did the performance of the money market and fixed income funds managed by the company jump to the forefront?
Naglah: The work strategy of these funds has been completely changed. The money market fund of the National Bank of Egypt has achieved a sharp leap in its performance, thanks to a careful study of the market and the current economic situation. The bank has prepared for the economic hardship by liquefying part of the portfolio, and significantly depending on the trades that have made good revenues for the fund, pushing it to take the first place now with a return of 13.35%, which is a return that has effectively contributed to attracting institutions, as it is exempted from taxes, unlike their investments in the bank deposits that incur a tax burden.