When War Drums Beat, Duck for Cover

When War Drums Beat, Duck for CoverRisks/Themes1. Higher energy and global commodity prices2. Inflation, which might be exacerbated by a potential re-pricing of some subsidized commodities3. “Possible” strength in the US Dollar4. Higher interest rates, at least on sovereign and treasury bills, due to higher credit default swap ratesHedging Strategy| Fixed Income, EKHO, COMI, HRHO, EFIH, PHDC, ETEL, EAST, CLHO, CIRA1. Fixed income allocation is a must, especially in light of rising yields in tandem with higher CDS rates.2. Fill three needs with one deed: USD strength, commodity price surge, and global supply shortages. Industrial producers of exported commodities are the key beneficiaries including EKHO, ABUK, MFPC, EGAL, ESRS, SKPC, AMOC, and ORWE. If we were to choose one name, it will be EKHO, since it ticks all boxes.3. Hit two birds with one stone: Inflation and rising interest rates. Banks, Non-bank lenders, and real estate companies are the key beneficiaries here and we choose COMI, HRHO, and PHDC (pure real estate play, limited tourism exposure).4. Look for “sticky” demand: ETEL, CIRA, CLHO, and EAST (all risks associated with the new license are already priced into the current stock price).5. Stay with “hedged” stories: HRHO is “relatively” hedged by the FAB offer. EFIH is working with the Egyptian government on digitization.Buckle your seat belts and stay safe!