Global and regional financial markets witnessed intense pressure during last weekend due to Russia’s offensive against Ukraine and threats of escalation in the region.
The Egyptian Exchange (EGX) lost about EGP 24.4bn in last Thursday’s trading session. The crisis also affected the prices of basic commodities, especially oil, which reached historical levels. Oil prices recorded on Friday about $101.4 a barrel. Futures for West Texas Intermediate Crude for Delivery in April recorded $94.66 a barrel.
There are speculations that global demand for primary commodities will remain strong in 2022 with the continued recovery of the global economy, although similar price hikes are unlikely.
Research also suggests that some stocks in the EGX may benefit from the crisis.
Higher energy prices are adding to inflation problems as well as the crisis in Ukraine taking a new turn, EFG-Hermes Research said.
It added that the prospect of more Western economic sanctions raises fears of further escalation, which in turn will cause higher energy prices and a waning interest in emerging markets.
EFG Hermes pointed out that high energy prices are a major driver of global inflation, which has already severely affected emerging market currencies and cash flow rates in the past few months.
Moreover, the escalation increases the problems of emerging markets, especially oil-importing countries, and leads to the possibility of continued high inflation rates in food prices.
The outlook is more complex than an acceleration of monetary policy by the US Federal Reserve, which can increase the pressure on financing in the face of current account deficits, and limit cash flows to emerging markets.
EFG Hermes research believes that the combination of high energy prices and caution towards emerging markets makes the GCC countries a clear winner, indicating that these countries will continue to receive strong inflows.
It explained that the combination between tightening monetary policy and increasing inflationary pressures will put additional pressure on the oil-importing economies led by Pakistan.
Hesham El-Shebeini, the Head of Research at MubasherTrade, said that the energy sector, with all its derivatives, is one of the biggest beneficiaries of the Russian-Ukrainian crisis, pointing out that the sector is one of the first sectors to be nominated by Mubasher in the annual strategy.
El-Shebeini said that geopolitical tensions, whether between China and America, Russia and Ukraine, Israel and Iran, or even between Egypt and Ethiopia, and any escalation in one of those conflicts, could cause a shock in the global energy market, especially oil. This was evident after the escalation between Russia and Ukraine.
He added that the traditional energy sectors, or new and renewable energy, are both beneficiaries, but the extent to which they benefit from these issues varies depending on each sector.
Furthermore, he pointed out that the stocks that benefit greatly are those that work in the initial stages of the production process of any exploration companies “up-stream”, pointing out that the Egyptian Kuwaiti Holding Company that works in this field is the only one of its kind among listed companies. It also works in fertiliser activity through the Alexandria Fertilisers Company.
He pointed out that other companies benefiting include those in the field of petroleum materials delivery, which is the middle stage of the energy sector, also called “mid-stream”, followed by those working for final consumers, which are “down-stream” refining companies such as the Alexandria Mineral Oils Company and TAQA Arabia — a subsidiary of Qalaa Holdings — and the Egyptian Refining Company.
He pointed out that the refining companies will benefit temporarily, unlike exploration companies, especially as they receive oil at international prices and start the process of refining. He noted that the benefit is temporary from the current crude available, which represents a large profit margin.
El-Shebeini explained that the rise in oil prices increases the tendency to use agricultural commodities to produce biofuels and thus increases the demand for agricultural commodities for uses other than food. This raises the price of food commodities, so this was one of the reasons for choosing the ‘Delta Sugar’ company.
Prime Securities Research said that strategic thinking is a very difficult task in this particular situation, as investors enter a risk-control situation.
It added that the tactical point of view is exiting the shares linked to commodities with local raw materials while they are still winners, pointing out that if the situation continues, several shares are likely to benefit.
Those shares include Abu Qir Fertilisers, Misr Fertilisers Production, Egyptian-Kuwaiti Holding, Egyptian Financial and Industrial Company, Misr Aluminum, Misr for Chemical Industry, Sidi Kerir Petrochemicals, Qalaa Holdings, and Alexandria Mineral Oils.
