Issuing Bank: Fund Manager: (Equity Fund) Second Fund Mid 2018 Newsletter

Investment Strategy Fund Details nd Banque Misr 2 Fund (Equity Fund / Growth) follows an investment policy, which is to Fund Type Equity/ achieve capital appreciation to the certificate holders in the first place (NAV apprecia- Growth tion) through investing in selected stocks, which are discounted to their fair value and are expected to appreciate, based on their financial results, projections and based on the fund Inception Year 1995 manager’s opinion in the market and stocks’ outlook. NAV calculation Daily The fund is near the median of its peers, with respect to return performance based on Certificates purchase & redemption Daily until EIMA report for the periods 2 & 3 years, while achieved better than median in the cur- 12PM from all rent year till the end of June 2018. Banque Misr branches Fund Manager Outlook Certificate purchase Fee None The Egyptian economy witnessed a significant reform event in the form of the floatation of the currency in November 2016. This event took over a year to be absorbed from both its positive and Certificate Redemption Fee 0.75% negative impacts. Normalization of inventory costs, market accepting new products prices as well is removing the comparable currency impact in the comparable historical results. The devaluation Fund Manager Annual Management took the exchange rate from EGP8.4/$ (unofficial rate) in early 2016 to near EGP18/$, that’s a 0.3 - 0.2% 115% increase, inflation during this period based on CPI increased 79%. EGX30 at its late April 18 Fee peak recorded a 164% from the beginning of 2016, while after a correction by the beginning of August, a 120% increase was recorded from the same starting point. Fund’s Auditor: Mostafa Shawki / Wahid Abdel Ghafar & Co. We see the late April 18 peak was discounting strong 2018 growth, but a Q1 18 came out good but not that good with Q1 18 earnings showed 25%yoy and 20%qoq for the 100 companies in our uni- Investment Policy verse. This created the pause that was witnessed in the following period. This came in the same time while emerging markets were starting a correction from its February 2018 peak. at its Equity max. Limit Up to 95% peak was a bit more expensive from EM markets PER on 2018 earnings, while providing a 10% on 2019 expectations. So both the indigenous and exogenous factors combined set the stage to bring Equity min. Limit 50% the EGX30 16% correction from the April peak. Fixed max. Limit 50% Again Q1 showed a recovery, and the recovery was shown again in food sector companies in 2Q 18 results that were released at the time of issuing this report, but with energy prices increasing at the Fund Distribution end of June 2018, and factoring a minor drop in household disposable income, with the EGP700bn Annual CDs that were locked at 20% rate got repriced at lower rates, add to these factors the initiation of the real estate tax collection. Although each could be considered minor, combined can make a dent Fund Information June 30, 2018 in Q3 18 consumer spending. Fund Size (EGP mn) 146.7

Still 2019 promise more growth with surges in Natural Gas production, tourism recovery and fur- Reuters Code LP65077578 ther consumers absorbing products price increases. Tourism already shown a healthy 120% in- crease in revenues during 2017 and expected to show further growth in 2018 due to British tourist Certificate Value 123.9 numbers increasing and Russian tourists expected return could be the catalyst for an even better 2019 tourism revenues levels. We are looking forward (mainly through tourism & remittance in- NAV YTD Low-High 110.7-133.5 come) to see reserves grow at a pace faster than foreign debt, and consider this as one of our main catalysts to our 2019 market projections. 2018 Distributions /Certificate -

Even with the minor bump in consumer spending, we expect in Q3, we see the consumer sector set Since Inception Distributions 79.4 for a recovery in 2018 & 2019, due to the normal growth in population and improved income fol- Certificate Par Value 66.67 lowing improved tourism revenues, and better utilization rates. Real estate and to a lesser extent the auto industry can also benefit from the redemption of the 20% CDs, while both tourism & con- YTD performance 11.7% struction vehicles to have an expected demand recovery. Annual Return Since Inception 9.0% Banks earn a net interest income, so declining rates in the medium term, won’t hurt them, especial- ly with a shift to a more EGP balance sheet, which has higher NIMs than FX assets. Moreover, we Return Post MCI’s Management 229.3% believe the increase in long term loans, backed by an improved economic activity, would support interest income and commission & fees. Annual Return Post MCI’s Manage- 34.9% ment Concerns from a slowdown in real estates could be valid, but the biggest companies (which we follow) are the best positioned to either lead the herd or weather the storm, if the slowdown hap- Fund Breakdown pens, especially with the new JV approach, which makes the companies asset light.

We generally see the telecom as a mature sector, but some companies show deep discounts, which could present some upside over the next 12 months. Concerns about cement sector oversupply are valid, but again some became a bit cheap even after discounting this oversupply. We are looking forward to see the impact of the energy price changes on Q3 results to fully under- stand the impact on cost, but we will also look at whom was able to pass through the cost increase, so it must be treated on a case by case approach. We see 2018 might be tight, with some upside in EGX30 to18.1k at a 50% probability to material- ize, but if our catalysts materialize we could see EGX30 in the 19.9k area during 2019 at a 70% probability to materialize. Our targets correspond to Egypt 2019 earnings PER expected multiple of 10.0x vs. peer emerging countries PER for the same year of 12.9x. Top Sectors & Its Sector % of Equity Top Equity Holdings percentage of Real Estate & Related 27.9 Equity Financial non-Banking 16.1 Commercial International Bank Construction & Related 15.4 Banking 15.2 Sewedy Electric Food & Related 8.5 Telecom, Media & IT 6.5 Talaat Moustafa Group Oil Related 2.7 Transportation 2.3 Eastern Company Textile & Related 2.2 Pharmaceutical 1.8 Egypt Kuwait Holding Co Chemical & fertilizers 0.8 Banque Misr Call Center: 19888 www.banquemisr.com Issuing Bank: Fund Manager: (Equity Fund) Banque Misr Second Fund Mid 2018 Newsletter

Fund’s Equity Price to Earnings Multiple (2018e) 12.6 Other Fund Indica- tors Fund’s Yield 2018e (Stocks & Fixed Income) 2.7

Fund’s Equity Beta 1 0.96

Fund’s Equity Sharpe Ratio 2 4.7

Fund’s Equity Treynor-Black Ratio 3 28

4 Equity Estimated Alpha Return 20 EGX30 stocks % of Fund’s Equity 80 EGX100 stocks % of Fund’s Equity 98 Avg. Turnover of Fund’s stocks to their respective Turnover 0.4 Fund Performance Ranking out of the 28 Egyptian Equity Funds (2018*) 11

Performance Till June 30, 2018 YTD 2 Years 3 Years 5 Years

Banque Misr Second Fund 12% 126% 94% 191%

Ranking 11 16 15 15

EIMA Average Balanced Funds 11% 128% 92% 192%

BM 2 Performance to Average Funds 110% 98% 102% 100%

EGX 30 Index Performance 9% 135% 95% 244%

BM 2 Performance to the Index 132% 93% 99% 78%

Source: Egyptian Investment Management Association EIMA

Banque Misr Banque Misr was established in 1920 by the leading economist Mohamed Talaat Harb Pasha The bank captures 16%, 10% and 14% of the deposits, lending and total assets of the Egyptian banking sector respectively, positioning it as the second largest commercial bank in Egypt. The bank has investments in over 220 projects, including some of the most significant projects in Egypt, in various economic sectors includ- ing industrial, touristic, real estate, food, public utilities projects in addition to communications, and information technology. The bank has over the years created a massive client base, which is close to 6 million customer, through its widespread network of branches which stands at 470 branches and banking units spread over all of Egypt, in addition to its presence abroad.

Established in 2010, with an issued and paid capital of EGP1.5 billion, and under the accordance of law #95 for year 1992, Misr Capital Invest- and operates with a Egyptian Financial Regulatory Authority license (#586). MCI currently has a paid in capital of EGP 3.5 ments billion. The company operates in the direct investment and asset management fields The management of Banque Misr’s first and second mutual funds have been entrusted to MCI since December 2011. The company owns a portfolio of direct investments including: 99.9% stake in Banque du Caire, 5.6% of Future for Urban Development, 8.7% of Alexandria for Mineral Oils, 10% of Middle East Oil Tankage & Pipelines & 4% Alexandria Fertiliz- ers. . Banque Misr Building 2nd floor - Financial District Smart Village, KM 28 -Alex Desert Road, Giza, Egypt. Tel.: 02 35370830 / 31 / 32 Fax: 02 35370829 www.misrci.com

1 Fund’s Beta: used to assess the fund’s equity volatility risk compared to the market 2 Fund’s Sharpe Ratio: Used to assess the quality of the fund’s equity expected return less the risk free rate over its volatility (standard deviation) 3 Treynor-Black Ratio: Used to assess the quality of the fund’s equity expected return less its cost of equity rate over its volatility (standard deviation) 4 Fund’s Alpha Return: The fund’s equity target upside from current prices, above the risk free rate

For all of the fund’s details, terms and constraints, please review the fund’s offering memorandum Past performance does not guarantee future results The fund may not be appropriate for all investors The fund may invest in certain sectors and stocks, which can result in increasing its vulnerability to any significant political, economical or regulatory development Diversification does not assure a profit or protect against loss in declining markets Fixed income investment are subject to interest rate risks The fund’s manager opinion in the market and/or stocks mentioned in this report may change without prior notification The fund’s manager opinion is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell the securities mentioned in this report

Banque Misr Call Center: 19888 www.banquemisr.com