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Egypt national elections offer hope: EFG co-head

The co-chief executive of EFG Hermes told CNBC that Egypt was undergoing political rejuvenation, meaning it had a lot to offer investors.

But the investment bank, which remains a leading securities broker in Egypt, is still looking to diversify its revenues away from the country and lock-in more business from the oil-rich Gulf.

"The situation has definitely changed," Karim Awad, co-CEO of EFG Hermes, told CNBC's "Access: Middle East".

He shrugged off suggestions the country was reverting to its old order, as it gears up for presidential elections on May 26 and 27 in which former field marshal Abdel Fattah El-Sisi is widely tipped to win.

Abdel-Fattah el-Sissi
Sefa Karacan | Anadolu Agency | Getty Images
Abdel-Fattah el-Sissi

"There is more activity that is on the street and there is also a level of, and intention to participate in, the democratic process a lot more actively than before," said Awad.

EFG Hermes is one of the largest investment banks in the Middle East and North Africa, and has been hit hard by the political instability in Egypt that began in 2011. The firm has just completed a plan aimed at shedding $72 million a year in operating costs, having swung to a net loss of $48 million in 2013.

Despite Awad's optimism, Egypt's new president will face an uphill battle. He will need to balance the prospects of a violent standoff with the now-banned Muslim Brotherhood with the need for sensitive economic reforms in the face of sluggish growth. Items on the agenda will include a bloated subsidy bill and a yawning budget deficit.

However, equity investors, mostly local, have struck a confident note. Egypt's benchmark stock index, the EGX30, has rallied 67 percent since the ouster of Mohamed Mursi on July 3.

Defensive plays have proved especially popular. "A lot of people that are looking at Egypt, they are looking at the consumer-driven industries," said Awad. "Anything from food and beverages to medicines, to clothes and so on".

Gulf expansion

EFG Hermes aims to get 60 percent of its investment banking revenues from outside of Egypt. Awad is especially keen on markets in the oil-rich Gulf, with the bank focusing on the United Arab Emirates (UAE) and Saudi Arabia.

"We are very bullish on the UAE in general, it's a market we've been in for the past 10-11 years," Awad said.

The UAE and Qatar are due to join in the MSCI emerging markets index later this Wednesday, but it is unclear that EFG Hermes will profit from any associated stock market gains.

Dubai-based Arqaam Capital was skeptical in a recent research note. "We believe EFG Hermes is unlikely to benefit from the upgrade to MSCI EM of Qatar and the UAE, given the dominance of Egypt in EFG's revenues".

Saudi Arabia, meanwhile, has been of a priority for EFG Hermes for some time, given that it is the largest market in the Middle East. Both Saudi Arabia and the UAE have been among the largest financial supporters of Egypt's interim government.

However, Saudi regulators have repeatedly put plans to open up the market to foreign investors on the backburner, despite promises to do so. Meanwhile, EFG's branch in Saudi is yet to live up to expectations.

"It's highly competitive, and it is not easy to operate in, for sure, especially for an independent investment bank," Awad explained.

This week on "Access: Middle East": An exclusive, in-depth conversation with Karim Awad, Co-CEO of EFG Hermes. Get his views on the future of Egypt, opportunities in Africa, and his response to allegations of misconduct by the firm.

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