CAIRO: The stock market took a sharp dive yesterday as the government s latest public offering, Misr Aluminum, faltered.
Stock exchange officials suspended trading at 11 am for half an hour on Tuesday when the price of several shares declined by 20 percent. By the end of the day, the CASE 30 index, which tracks the top 30 companies on the stock market, dropped by 6.4 percent, closing at 5,892.73 points.
Two of the biggest losers were EFG-Hermes and Arab Cotton Ginning. EFG-Hermes experienced heavy trading this year as a result of its expansion plans in the Gulf, dropped by 24.98 percent to LE 33.00. The share price of Arab Cotton Ginning had also increased substantially since the beginning of the year but lost 23.75 percent of its value yesterday, reaching LE 10.50.
The latest tumble was to be expected. The market rallied substantially in January with prices driving up fundamental ratios above their historic levels. The latest adjustment brings price-to-earnings multiples back in line with the fair value expected by many analysts.
The general decline in the market is a correction in an upward trend and was due to shares prices being over extended in a very short duration, around three months, starting last November, says Yasser Ibrahim, senior research analyst at HC Brokerage.
The situation in Egypt mirrors similar declines in Gulf capital markets. The stock markets in Abu Dhabi, Dubai, Kuwait, Doha and Saudi continued to fall yesterday as Arab Times reports of rumors that the Kuwaiti government may intercede with possible funds from Kuwait Investment Authority and Kuwait Find for Arab Economic Development and revive the market. The Kuwaiti parliament will also have a special session shortly to discuss the decline and its affect on retail investors.
The panic amongst retail investors in the Gulf contributed to yesterday s sharp decline. Today s crash was a continuation of the market correction that was affected and accelerated by the declines in other Gulf markets, to become a general state of panic, explains Ibrahim.
Since many Gulf investors include Egyptian companies in their portfolio, they may need to liquidate their Egyptian shares as they sell their leveraged their positions in the Gulf market.
Yesterday s plunge does not help the government s latest public offering of Misr Aluminum, which was already suffering due to the unattractive price of the issue. Al-Alam Al-Youm newspaper reported dismal interest in Misr Aluminum, with subscriptions being received for only 176,000 out of the total 8.75 million shares offered. The subscriptions represent some 2 percent of the total offering while only 12 days remain for the subscription period.
The timing is not appropriate, adds Ibrahim, as the market has been going through a correction that started early February, indicating that the previous bullish sentiment of the market was no longer maintained.
The performance of Misr Aluminum is a reversal of fortunes for Minister of Investment Mahmoud Mohieddin s program of offering stakes of state-owned companies to the public. Previous offerings including Telecom Egypt, Sidi Krir and Alexandria Mineral Oils Company were very successful.
However, the disappointment of the latest offering is consistent with a recent trend in Mohieddin s overall privatization program. The sale of Egyptian American Bank to Calyon earlier this year caused an uproar in both the stock market and parliament, with investors and analysts deploring Calyon s price and legislators claiming favoritism due to the fact that the French bank s two local partners are cabinet ministers.
This was followed by Mohieddin s controversial attempt to sell the state-owned department store Omar Effendi, which is still ongoing. The government has received an offer of LE 504 million from the Saudi Anwal Group, but critics claim that the offer is less than half the real value of the company.