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After
a period of political and economic chaos, Egypt’s funds industry is looking
forward to happier times, writes Celine Salloum of Zawya.
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page head:
Egypt’s
fund managers look for continued growth in H2-2012
By Celine Salloum of Zawya
With a civilization dating
back more than 5,000 years, Egypt is one of the oldest tourist
destinations on earth. For the past couple of years, however, the
country has been struggling to remodel its politics and economy. This has had
its effect on several financial sectors, including the equity market and the
funds sector.
According
to the Zawya Funds Monitor,
Egypt had 68 domiciled funds at the end of 2010, with USD 9.50 billion in
assets under management. With the stock market growing 15% in 2010, there were
clear indicators this upward trend would continue, thus increasing the net
asset value and the inflow of capital into the Egyptian mutual funds industry.
This is clearly shown through the increase in the number of domiciled funds to
78 at the end of 2011 and 82 as of June 2012.
With
a population of more than 80 million
people, a majority of them Muslim, Egypt is potentially an attractive market
for Islamic finance. Among the 82 domiciled funds, 12
are Islamic and 70 are conventional, ranging from money market, equity, balanced
and fixed income, funds of funds, capital guaranteed and capital protected funds.
Gross
AUM has risen from USD 7.582 million as of Q3-2011 to USD 8.460 million as of
Q4-2011.
By
the end of 2010, Egypt was one of the fastest growing economies in the MENA
region with 5.1% real GDP growth. But a series of events threw the country’s
troubled transition to democracy deeper into confusion. Egypt was the 30th largest economy in
the world in 2010, according to Economy Watch. However, thanks to
centralization and corruption, Egypt is a poor country. GDP per capita was USD
6,200 in 2011, making it 135th in personal income rankings.
Egypt faces significant immediate economic challenges,
especially the need to restart growth and address the fiscal and external
imbalances after the new government settles in.
But the second largest economy in the
Arab world has been as resilient as the centuries’ old pyramids.
The investment
regime has been stable, but flows have slowed significantly due to the
challenging economic and political situation. The Islamic asset management industry
is expanding. Islamic funds and investments are expecting an inflow of USD 70
billion from GCC investors by 2013.
Performance of Asset Types in Egypt (YTD
June 28, 2012)
Source: Zawya Funds Monitor
In June 2012, Egypt's stock market had the second-best
year-to-date performance in the world, after Venezuela. Salah Shamma, co-head
of equity asset management at Franklin Templeton Middle East, said he doubled
his fund's exposure to Egypt after the first presidential elections in May,
though he retains a "neutral" stance on the country that reflects the
level of political risk.
EGX 30 (YTD July 30, 2012)
Source: Zawya Funds Monitor
After falling close to 50% in 2011, the stock exchange
showed a smart recovery, rising 24% in the first half of 2012. Despite a
notable drop in flows from international investors and volumes in general, the
EGX 30 stands almost 30% higher from its January 2 close.
"Egypt fundamentally is still a very solid market
for investment," Mohammed Omran, the executive chairman of The Egyptian
Exchange (EGX), said. "The country experienced 7% growth before the
financial crisis and 4.8% during the crisis, when Western economies were
struggling. And, as a country of 80 million people, Egypt still represents one
of the biggest markets in the Middle East."
With most
investors on vacation during July, and Ramadan dealing with August, full
trading activity may not be restored before September, as the daily
trading hours in Egypt have been shortened. But the
first milestone of the second half of 2012 will be the Q2-2012 corporate
results, which are expected to be a promoter for the market as well as the
mutual funds industry.
Celine Salloum is a research analyst at Zawya.
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