Not to start on a low note, but several indicators show that the economic situation in Egypt continues to be difficult. The annual inflation rate in December 2022 rose to its highest level in 5 years—21.3%. Analysts attributed the increase in inflation to the lack of supply of goods and services due to the current import crisis & lack of foreign currency.
In addition, the IMF held a meeting that saw it lower its expectations for the growth of the Egyptian economy from 4.4% to 4%. The IMF also added that inflation is expected to slow down no less than two years from now.
In an effort to curb inflation by encouraging people to save more and spend less, the CBE was forced to hike interest rates significantly up to 16.25% on deposits and 17.25% on lending.
Naturally, investors will want to protect themselves from all the different macroeconomic factors and ensure they invest in companies that can withstand current economic conditions better than others.
That’s why Thndr created two brand new themes: “Interest rate players” and “Steady stocks”.
Interest Rate Players Theme
At times of high-interest rates, the banking sector stands to benefit from the difference between interest received on lending and interest paid on customers’ deposits. Another sector that stands to benefit is the non-banking financial services sector, as business tends to increase during times of rising interest rates as companies race to restructure their financing.
Steady Stocks
At times of slowing economic growth, companies with relatively steady historical earnings show signs of withstanding a slowing economy better than others. We looked at EGX-listed companies’ quarterly net income over the past 5 years, and we found that companies in the health care, consumer staples, banking, non-banking financial services, and education sectors recorded relatively steady net income. We justified the stability in earnings given how essential the products and services offered by the companies are, which means they tend to not be significantly impacted as much as others by external factors.
All companies listed in either theme:
- Have an average traded value greater than EGP 1mn
- Recorded stable net profits in the last 5 years
- Have been validated by economic analyst Hany Genena
Another topic we’re really interested in looking into is whether we are currently in an inflationary environment or something else. You can look forward to another Thndr Claps special soon to help you make sense of it all.
Inflation vs Stagflation: Let us know your thoughts!
We mentioned earlier that inflation has reached its highest level in 5 years, which brings us to an important question: Are we in a period of inflation or stagflation?
Stagflation is a term that appeared in the sixties and describes periods when the economy suffers from very high inflation, slowing economic growth, high unemployment levels, & strict monetary policy is in place.
So, what do you think?
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