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Buffett Indicator: Egypt Stock Market Valuations and Expected Future Returns

Updated at Mon, 23 May 2022 20:30:07 -0500
Country: Egypt (updated daily) check out Global Overview for detailed methodology.

According to the original Buffet Indicator, the Stock Market is Significantly Undervalued.

Ratio of total market cap over GDP: Recent 10 Year Maximum - 30.79%; Recent 10 Year Minimum - 8.41%; current - 8.41%
Expected future annual return: 26.1%

Based on the newly introduced total market cap over GDP plus Total Assets of Central Bank ratio, the Stock Market is Significantly Undervalued.

Ratio of total market cap over GDP plus Total Assets of Central Bank: Recent 10 Year Maximum - 26.21%; Recent 10 Year Minimum - 7.23%; current - 7.23%
Modified expected future annual return: 25.8%

ETF Used for dividend yield: EGPT (Yield=3.09%)
Market Index used: EGX 30
Current Annual GDP: $343 billion US dollars or 6,354 in billions of national currency (GDP in Local Current Prices Annual Growth=11.62%)
Current Total Asset of Central Bank: $56 billion US dollars or 1,029 in billions of national currency
Data since year 1998


Egypt Historical GDP Growth

Historical GDP of Egypt in billions of national currency. The GDP in local current prices has grown at the annual rate of 11.62% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $343 billion US dollars or 6,354 in billions of national currency.

Egypt GDP (Billion, National Currency)

Historical Stock Market Cap

Historical total market of Egypt in billions of national currency. This value is normalized using the data published by WorldBank. EGX 30 is used for the normalization. The EGX 30 Index is a stock market index for securities designed and calculated by EGX. It includes the top 30 companies in terms of liquidity and activity.

Egypt Total Market Cap (Billion, National Currency)

Historical Total Assets of Central Bank

Historical Total Assets of Central Bank of Egypt in billions of national currency, which is obtained from each country’s central bank balance sheet. Please be aware that if the total assets is displayed as zero or - , it suggests that there's no data available rather than the original data being zero. In this case, the modified version of both the ratio and projected annualized market return will be treated the same as the original version.

Egypt Total Assets of Central Bank (Billion, National Currency)

Original and Modified Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Egypt is 8.41%. The recent 10 year high was 30.79%; the recent 10 low was 8.41%. If we assume that the ratio will reverse to the recent 10 years mean of 19.92% over the next 8 years, the contribution to expected annual return is 11.38%.

Based on the modified version, the current TMC / (GDP + Total Assets of Central Bank) Ratio for Egypt is 7.23%. The recent 10 year high was 26.21%; the recent 10 low was 7.23%. If we assume that the ratio will reverse to the recent 10 years mean of 16.82% over the next 8 years, the contribution to expected annual return is 11.13%.

This is the detailed historical chart of the original TMC / GDP ratio and modified TMC / (GDP + Total Assets of Central Bank) ratio.

Egypt Original and Modified Ratio of TMC over GDP (%)

Based on these historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / GDP Valuation
Ratio ≤ 14% Significantly Undervalued
14% < Ratio ≤ 18% Modestly Undervalued
18% < Ratio ≤ 22% Fair Valued
22% < Ratio ≤ 26% Modestly Overvalued
Ratio > 26% Significantly Overvalued
Where are we today (2022-05-24)? Ratio = 8.41%, Significantly Undervalued

Based on these modified historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / (GDP + Total Assets of Central Bank) Valuation
Ratio ≤ 12% Significantly Undervalued
12% < Ratio ≤ 15% Modestly Undervalued
15% < Ratio ≤ 19% Fair Valued
19% < Ratio ≤ 22% Modestly Overvalued
Ratio > 22% Significantly Overvalued
Where are we today (2022-05-24)? Ratio = 7.23%, Significantly Undervalued

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Egypt stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below.

The Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / GDP ratio reverts to its recent 10 years mean of 19.92%.

The Modified Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / (GDP + Total Assets of Central Bank) ratio reverts to its recent 10 years mean of 16.82%.

The Actual Return line indicates the actual, annualized return of the Egypt stock market over eight years. We use “EGX 30” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the actual return line is closely parallel to the two predicted return lines.

Predicted and Actual Returns of Egypt

Conclusion

Under the original buffett indicator, the stock market of Egypt is expected to return 26.1% a year for the coming years. This is from the contribution of economic growth in local current prices: 11.62%, Dividend Yield: 3.09% and valuation reverse to the mean 11.38%.

Under the modified model, the contribution of economic growth and dividend yield stays the same while the valuation reverse to mean changes to 11.13%. Consequently, the stock market of Egypt is expected to return 25.8% a year.

This is the projected return and the modified projected return of the stock market in Egypt relative to other countries. Click on the country on the left sidebar to check out the details for each country.





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