Financial portfolios undergo restructuring amid tendency to invest in stocks of export companies: investment managers

Mohamed Ahmed
4 Min Read
Essam Khalifa, the managing director at the National Fund Management Company (Al-Ahly)

Investment managers of financial portfolios and investment funds are tending to restructure investment pools after the Central Bank of Egypt (CBE) decided to float the Egyptian pound.

According to investment managers, the restructuring process depends on the general tendency to invest in stocks due to their rising attractiveness compared to fixed-income instruments, despite the CBE’s decision to increase the interest rate by 3% on Thursday. The stock prices remained low in anticipation of the flotation of the pound, which may be followed by the final approval of the International Monetary Fund (IMF) to lend Egypt $12bn.

Rana Adawi, chairperson of Acumen Asset Management, said that asset management companies will restructure financial portfolios and balanced funds.

She added that the main reason behind this move is the high attractiveness of stocks in general compared to fixed-income instruments, whether short-term, such as deposits or treasury bills, or long-term instruments, such as treasury bonds.

Adawi stated that despite the increase in returns on treasury bills, reaching 20% before taxes, the stock market has been waiting for this decision for a long time, as the current prices of stocks are much lower than their fair value, which reflects the financial performance of their companies. In case the flotation of the pound succeeded in providing freedom of entry and exit for foreign investors, the stock prices would increase.

Adawi pointed out that the balanced funds which invest in stocks and fixed-income instruments will increase their investment shares in stocks to benefit from the expected boom in stock prices, especially as the flotation coincides with the postponement of the capital gains tax in the Egyptian Exchange for three years.

She added that investment managers recently invested in short-term fixed-income instruments, such as treasury bills for 91 days or deposits, so that they can liquidate their investments quickly and benefit from the high return on fixed-income instruments after the flotation of the pound.

Essam Khalifa, managing director of the National Fund Management Company (Al-Ahly), said that there is another factor for restructuring the financial portfolio and investment funds, which is allocating the largest share of liquidity to invest in stocks benefiting from the flotation of the pound.

He said that the companies that collect their revenues in US dollars through exporting, as well as the distribution of coupons with a high return on equity, would attract investment managers, unlike the stocks that depend on imported production inputs and do not achieve their revenues in foreign currency.

Khalifa pointed out that the amount of money invested in financial portfolios and investment funds is less than before the 25 January Revolution, as a lot of investors withdrew their investment certificates, and the CBE set limits on the investment share in stocks at fixed-income funds.

He added that the restructuring of financial portfolios depends on investors’ tendency to hire investment managers to manage their money.

Reham El-Saeed, managing director of asset management at Cairo Financial Holding Company, said that that the flotation of the pound and the delay of the capital gains tax in the stock market will increase the competitiveness of the Egyptian Exchange among emerging stock markets.

El-Saeed added that the stocks will gain more attractiveness supported by the flotation of the pound, noting that they will attract more investments after they declined due to the economic challenges facing Egypt, including the shortage in foreign currency, the unofficial market, and the increase of the budget deficit and public debt.


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