The Central Bank of Egypt hiking its policy rate and devaluing EGP, and the IMF announcing a staff-level agreement on a 46-month extended fund facility worth US$3bn, should help reduce the risk of crisis for now (although Egypt is still not out of the woods given its large external funding needs).
And we continue to think there is upside for Egyptian eurobonds and that they offer attractive value. We reiterate our Buy recommendation.
Our positive view on Mozambique (Caa2/CCC+/CCC+) is based on the onset of LNG production and its strong ability to pay (debt service on the bonds is very low), together with the government's prudent approach to macro-management. The IMF programme, which improves the outlook for donor funding, is the icing on the cake.
China has long since fallen out of favour of the consensus of emerging market investors and this is reflected in its deep discounts to its historical average valuation.
China equity valuations are at c10% discounts to the five-year median (trailing PB and PE, forward PE).
That discount is now large enough to prompt a revisit of the enduring strengths of the investment case – China’s scale in global manufacturing is irreplaceable, exports continue to grow despite ongoing US tariffs, China's representation in global equity indices remains far lower than its share of global market capitalisation or GDP – and the things that might go well – zero-Covid policy should ultimately relent, and a zero real interest rate implies capacity for policy stimulus.
Our top pick in Eastern Europe, should there be any de-escalation in the Russia-Ukraine War, is Hungary, which is the most reliant on imports of Russia gas (17% of total energy supply) and the cheapest relative to history (trailing PB at a 35% discount to the five-year median).
In European EM, this performance is similar to Poland (down 38%) but substantially worse than Greece, Iceland and Romania (all down in the range of 13-16%).
The FX rate is down 19% ytd, compared with down 14% in Poland.
Trailing price/book of 0.7x (for 16% ROE) is at a 40% discount to the five-year median, compared with a 25% discount in Poland.
Forward consensus dividend yield is 5.1%, compared with 3.5% in Poland.
Recent ownership changes at UK’s Chelsea and Newcastle United, and the news that Liverpool and Manchester United are in talks with potential investors, could prompt investors to seek out other sports franchises with large catchment areas and a strong emotional attachment with their fans.
For investors looking to gain exposure to association football, Turkey appears to be the most accessible market. The 'big three' Istanbul clubs (Besiktas, Fenerbache and Galatasary) are all based in this 15mn-strong metropolis that straddles both Europe and Asia. Trabzonspor is another option. One big advantage these clubs have is the opportunity to access the lucrative UEFA Champions League competition.
Further afield, Bali United, founded in 2015, competes in Indonesia’s Liga 1 (‘Super League’), a competition it won in 2019 and 2022. This firm trades at the highest multiple of sales within our sample.