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00:00You say it's a short term opportunity. I want to build on that narrative. I want to know whether it's the prospect of an IMF deal with GTC adding 22 billion dollars into the coffers of Egypt. Does that underpin the basis of your Egypt call. Correct. So if you look at valuation in Egypt you look at the price earnings of the Egyptian equity market. It's had about a 50 percent discount to the last five year average. So you start with cheap valuation. We have this moment where Egypt needs to make some policy moves. It's a little bit behind the curve in dealing with inflation and it's had to rigid and a currency policy. As the IMF deal gets signed as the JCC funds start coming in and you see a devaluation effectively Egypt is taking the sort of actions it has in the past in 2008 2011 2015 when there's been a moment of crisis. It's done the necessary deeds and we're gonna see the same thing this time around that creates opportunity. Now why I say it's a short term trade. It's a short term opportunity is for Egypt to escape this perpetual cycle of crisis and recovery from crisis. You need root and branch reform. You need a levelling of the playing field between High Flyers countless times which is bring in the private sector. The private sector is crowded out for many. The core need to be sort of delicate here with with how we present this. But there is a crazy night. I've heard this countless times. Has it changed. Will it change. Do you think it will change. Is that part of the thesis. Absolutely not. That's why it's a short term thesis. So it's a trade around the stabilization of the macroeconomic indicators. It is not a root and branch reform. If you look at the Egyptian military it's stronger and more entrenched today than it has been since any point in the 1952 revolution that includes its commercial enterprises. Do you think we get another devaluation on the point. We've had one high much more a significant devaluation. Do you expect. I would expect a double digit devaluation. So if you look at for 12 month prices on the Egyptian pound you've got about a 15 percent further depreciation expected by the market. Obviously as the IMF comes in as Gulf funds come in that will encourage portfolio investors to start reinvesting in Egypt but not when there's a negative two and a half percent real interest rate. That's got to be fixed first in terms of Pakistan. We've also seen Qatar stepping in with three billion dollars. There are other funds I understand flowing in as well from Saudi Arabia. When you look at Pakistan again you look at. There's been an improvement in the currency and an improvement in the equity market of late. Does that carry through. Does that continue. So it's definitely a pullback from the brink. Equities are up 20 percent in the last month. Currency has strengthened a little bit as well. Similar sort of story. The IMF deal is about to be signed and funds released. The difference I think in Pakistan is number one you've seen a more sharper bounce in recent weeks. Number two the political environment is still very toxic. You sort of in a completely polarized set up between the established parties led in who are leading the current government of the PDP in the Paul Allen. And you have Imran Khan's mass political awakening over the last three months since he lost power. Now the increasing repression being used to try and box I mean is not succeeding in diminishing his popular support. So in such a polarized environment and I would argue sitting behind the civilian parties the military and intelligence leadership of Pakistan by implication must also be divided between those who would welcome Imran back and those who want to see him completely out of politics in that sort of very divisive environment. It's hard to see the consistent application of Orthodox economic policy going forward. And again you say equities are 50 percent discount to the five year average. Is that enough in itself to overcome the political risk. It's a cheap valuation which gives you some downside protection. It is not in of itself a compelling and sufficient reason to buy the whole market on a three year view. It's a trade again a little bit like Egypt. It's not a structural reform thesis as yet. Knight I started the show talking about oil and the rally and that building narrative over a potential cut from pack plus which is amazing given the political will with which the Americans lobbied for a cut symbolic as it might be at 100 thighs and I'm sorry it lobbied for it for an out of 100000 excuse me. And and the risk is here that we pivot back to a cut. Is that really what's underpinning the oil market. I mean is is the OPEC put at ninety dollars. I think those comments from the Saudi prince were pretty powerful and they've been echoed around from other members of opaque plus sense. And so I do think if there is real evidence that confirms OPEC's bias that we're heading into a weakening global demand environment they're showing they're burying their teeth that they are willing to cut or restrain production if they need to. Do you think they just made a mockery of the Americans. I think it depends what your expectations were. My expectations were fairly low that President Biden would actually impact Saudi oil policy. I mean the Saudi interests our self-interest us like every other country I don't see them altruistically helping out the American inflation picture. Their goal is to have a sufficiently high oil price to keep growth humming along in Saudi. And that's certainly something there are 90 to 100 dollars not the sort of 60 50 dollars that the US would like. Now on the equity side of course it's been the outperformance you would note of Saudi equities relative to their other ENP. But on a valuation basis it's still 10 percent below the historic average i.e. you are a buyer of deep inside me. If and when that comes. So for me Saudi's still remains essentially an oil price trade. I know that there are diversification benefits going on the most powerful of which actually is the inclusion of women in the female in the workforce and the impact that's having on broad Saudi consumption. But you know if you look at the core problems in Saudi the structural problems that still remain low productivity and there still remain a dependence on the public sector. And that means it's still really an oil play for oil as I think expect to stabilise around 90 to hundred dollars. That's more than enough to own Saudi at a 10 percent discount on PE multiple for multiple years as a structural reform thesis. Still a little early for that hasn't.

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Malik: Egypt Behind Curve on Interest Rate, FX

Egypt's Prime Minister says he's aiming to finalise a deal with the IMF in the shortest time possible. A financing package is key for the country as it grapples with higher food and fuel import bills. Hasnain Malik, Head of Equity Research at Tellimer discusses why Egypt looks more like a short-term opportunity for investors. He speaks with Manus Cranny on "Bloomberg Daybreak: Middle East." (Source: Bloomberg)

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