Recent weakness in the Egyptian market is leading investors to look again for opportunities, but currency risks remain the major obstacle, according to Simon Kitchen, Director of MENA Strategy at EFG Hermes.

“Investors are looking for clarity on the FX policy. The Egyptian pound is overvalued right now. There is a lot of speculation when and how much it might devalue. And this is a big factor in investors’ calculations right now,” he said.

Kitchen stressed that there is not a lot of communication from the Central Bank of Egypt on this issue, so it’s difficult to pin down when the currency might move.

“The FX market is not working smoothly, so in some cases investors have found it slow to repatriate profits from investments in the country,” he added.

Kitchen said that at the moment he sees value in industrials in Egypt, adding that the problem for industrial companies for some time has been the shortage of energy.

“We see an improvement towards the end of this year, because it will be cooler and it means less demand for electricity and that frees up gas for industrial use. But also Egypt is going to be importing more energy in late 2015, so that increases the availability of energy for industrial companies and that can lead to recovery in earnings,” he said.

He added that one could argue that there is value in real estate companies in Egypt.

“Real estate companies have traditionally been a very good hedge against devaluation and inflation, but they’ve often fallen short in terms of generating free cash flow. I would maybe prefer stocks in Egypt that are generating some yield where there is some free-cash flow for shareholders,” he told Africa Global Funds.

Kitchen said that overall he sees a recovery in the Egyptian capital markets compared to 2-3 years, when it was very quiet and expects it to continue over the next year.

When asked about opportunities in other North African markets, Kitchen mentioned Morocco, saying that although the country has gone through a lot of positive development, the Moroccan economy is still geared to that in Europe.

“Europe is still the major trade partner and the major source of investment. But the European economy is not particularly healthy right now,” he said.

“In terms of capital markets, Morocco has capital controls, and that means that the equity markets are still quite expensive. They’ve been underperforming for some time,” he added.