EFG Hermes reveals five must watch sectors for 2024

EFG Hermes, a EFG Holding company and one of the top global financial services corporation, recently convened its 18th edition of the annual EFG Hermes One-on-One Conference. The event serves as a prime platform for investors worldwide to engage with companies from MENA (Middle East and North Africa) region.

The forum witnessed an impressive participation of around 210 companies from the region, with a significant representation from Saudi Arabia, totaling over 80 companies, along with an estimated 700 investors in attendance. The GCC’s emergence as a prominent player in global emerging markets, coupled with the resilience of the UAE and Saudi markets, has fuelled investor interest in the region.

On the sidelines of the forum, Gulf Business spoke to Hatem Alaa, deputy head of Research and head of consumer and healthcare, EFG Hermes. Alaa spoke about the key sectors poised for growth such as consumer-facing businesses, and remains firm about the possibility of gradual interest rate cuts in the latter part of this year.

Listen to the full conversation on our podcast channel – Gulf Business on Spotify.

Excerpts:

Could you tell us about the EFG Hermes forum?

We’re happy to be holding this event for the 18th edition. This is a great opportunity for investors from all over the world to meet companies from frontier emerging markets with a focus on MENA.

This is actually probably our biggest in terms of the number of companies that are presenting. We have around 210 companies presenting from across the region. We have a very high representation from Saudi this year, probably over 80 companies from Saudi alone.

And we have around 600, 700 investors from all over the world who are attending and meeting companies. I think it’s a great opportunity to exchange insights and for the investors to get updates on the different developments with regards to companies in the region and the broader frontier emerging markets.

What is EFG Hermes’ strategy for 2024 and also for the coming five years?

We remain very focused on our core MENA markets.

We’ve been very active in the last few years particularly in the UAE and Saudi Arabia which have been the most buoyant IPO markets and also when it comes to M&A and so on. So we’ve been involved on pretty much the majority of the IPOs here in the UAE and we’ve been getting an increasing market share in Saudi. We’re hoping actually to do more of that.

These remain to be core focus markets. MENA and particularly Saudi’s weight in global emerging market indices is becoming more prevalent. We are very keen on increasing the number of IPOs and transactions that we are part of and also in increasing our marketing efforts on the brokerage and research side to investors everywhere basically educating them on the region and the developments and so on.

We’re going to be doing more of the same we’ve been doing the last few years which is focus on the core MENA markets particularly UAE and Saudi.

What is your outlook for the mergers and acquisitions (M&A) market in the coming year?

We are seeing a good appetite from companies to follow through with M&A.

What’s being a bit prohibitive is that, particularly in the markets I mentioned, the valuations have increased even for M&A. The challenge is hence for the acquirer to find a quality asset at a good valuation. But, in terms of the appetite it’s there and we have a good number of mandates on that front as EFG Hermes which are on the M&A side.

I think the challenge is always matching and finding the right seller at the right valuation. We’re seeing a lot of interest in IPOs and more companies want to come to the market.

Do you think that’s also because of negative outlook around developed markets such as Germany, Japan or the UK?

GCC is a relatively recent entrant to the ‘Emerging Market’ status. And I think the exit of Russia post the Russia-Ukraine conflict from the index has increased the prominence of the GCC and the weight of GCC in global emerging markets.

Additionally. China’s post-COVID comeback in general has been disappointing. This combination is leading more and more people to focus on the region and particularly Saudi Arabia and the UAE even more, given its weight and its attractiveness relative to other regions as well.

Could you highlight some interesting facts about the UAE, Saudi and Egypt markets?

Saudi Arabia is undergoing a massive transformation as a country. And it’s very visible.

The extent of the transformation that is happening has been phenomenal. We’re seeing very strong migration to Saudi from people going to live there. We have a very strong population growth angle that’s been building up.

Tourism is also becoming a really big theme and they are delivering on it. They’ve had a record number of religious tourists last year and that will continue to grow. And I think they’re still scratching the surface when it comes to leisure, non-religious tourism with all the developments that are happening.

I think tourism-linked businesses, one way or the other, is a theme that investors are quite interested in. We will be seeing more companies coming to the market in that theme.

The Saudi stock market is very big and it’s a very liquid market. I think this is also a good appeal to international investors in general.

The UAE, equally, has come a long way in developing its capital markets. There is much more depth in the equity markets here today than it was a few years back. You have more sectors outside real estate, outside banking as well.

The UAE, has been one of the countries that has weathered COVID and a lot of regional conflicts, very well. Similarly, there is a very strong population migration and in the last few years, the population has become much more sticky than it was.

Additionally, tourism also has been very strong and very consistent. Hence, the UAE market is interesting in that regard. We’re still seeing a lot of IPOs coming to the market in different sectors as well.

Egypt has seen a challenging few years. However, the recent deal from ADQ investing $35bn in a development in Ras El-Hekma on the north coast is expected to be a big game changer. It resolves the country’s economic issues particularly when it comes to foreign exchange.

A big problem with Egypt in the last few years was that there was a big deviation between the official rate and the black market rate for the currency. That’s come down a lot.

We’re seeing foreign exchange backlogs being gradually cleared. I think Egypt is going to start to see foreign interests come back slowly. On the fixed income first and then probably on the equity side.

Egypt is at the cusp of a solution to its problems and it would be an interesting one to watch.

Which industrial sectors would you want to highlight to your investors?

A lot of the consumer facing businesses play on the demographic themes that I’ve mentioned when it comes to population, growth, tourism.

We’ve seen a big consumer recovery happening in the region because inflation, the high inflation of the last few years is coming off and hence consumer trends will improve for the locals. Plus you have this population tourism angle that will benefit that sector.

Similarly, healthcare and education are very prominent sectors. Across MENA and particularly the GCC, other than the favourable top-down dynamics, there is a clear mandate by the government to increase the private sector participation in those two sectors in particular. Private players are and will remain to be key beneficiaries of that and this presents a big growth opportunity. I think we’re still scratching the surface on that.

In finance, banks could be an interesting sector as interest rates start to come off for some of the GCC names. We’re going to see better earnings momentum for those sectors. I think these are the most interesting ones for the coming few years, I would say.

How optimistic are you about interest rates coming down this year?

It will come down eventually, for sure. Our opinion is that rates will start coming off in the latter part of this year.

Maybe the extent of the cuts will not be as big as people are expecting, but I think there is a very high probability that the US Fed will start cutting rates. But it will be just the beginning towards the latter part of the year.

You can also listen to the conversation by clicking on the link below: