Dow Jones launches Egyptian index

Waleed Khalil Rasromani
5 Min Read

CAIRO: A new blue-chip index for top-performing Egyptian stocks has been established by Dow Jones Indexes. The creator of the renowned Dow Jones Industrial Average unveiled its latest index yesterday.

The Dow Jones CASE Titans 20 Index will track the 20 leading companies on the Cairo and Alexandria Stock Exchanges (CASE) based on a common methodology of Dow Jones Indexes Titan series.

The Titans series currently covers 16 other countries and three regions, including the Arab world. The Dow Jones DIFC Arabia Titans 50 Index was created jointly with the Dubai International Financial Center two years ago and covers leading stocks in Egypt as well as Bahrain, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the United Arab Emirates.

The new index, however, is exclusively for equities trading on the CASE and domiciled in Egypt. Twenty companies are selected for inclusion in the index based on their capitalization, sales and profits.

The calculation of the index is completely different from the norms, explains CASE Chairman Maged Shawky, from even what we have now, so it s an addition to the market rather than a replaceable index. The calculation is all about the economic performance of the company itself.

A weighting of 60 percent is given to float-adjusted market capitalization, which is the value of shares that are available for trading to the public and excludes privately-held capital. The balance weighting of 40 percent is split evenly between revenues and net income.

The result of these weights is a ranking of stocks from which the top 20 are used in the index and the contribution of any single stock to the index is restricted to 20 percent the exception of one stock which may contribute to up to 35 percent. The selection and weights will be reviewed and adjusted every quarter.

The index complements the stock exchange s CASE-30 index and may pave the way for new products such as exchange-traded funds. Over $900 billion worth of assets are linked to the indexes of Dow Jones and STOXX Ltd., a European joint venture that is responsible for Dow Jones Indexes business in Europe and Asia.

The cooperation with CASE, the biggest stock exchanges in North Africa, sets the standard for investible indexes in this region and provides reliable underlying tools for financial products for these expanding regional investment communities, says Lars Hamich, managing director of STOXX.

While Deutsche Bank and ABN Amro have already issued certificates based on the CASE-30 index worth 100 million euros and 1 million euros respectively, the presence of an index based on a recognized methodology will encourage the issue tradable funds linked to the index.

Everyone knows the methodology, says Eduardo Escario, regional director of Dow Jones Indexes and STOXX, because it s consistent with a global index family, so everyone will know how it works and that will help foreign investors to invest in Egypt.

Shawky adds that the stock exchange s association with Dow Jones also promotes the Egyptian capital market abroad. Dow Jones is a very credible, reputable institution, says Shawky. So affiliating the name of Egypt and the stock exchange in itself gives more confidence for foreign investment to come in.

The public is still distressed from last month s stock market correction, when the prices of several shares dropped by 20 percent in a few hours. Many analysts blamed the decline on the overheating of the market by uninformed small retail investors. The introduction of exchange-traded funds under the discretion of professional portfolio managers will provide an avenue for such investors to return to the stock market.

Regulations for exchange-traded funds are expected to be established by the end of this year. In January, the stock exchange allowed margin trading for select stocks for the first time. Although it was previously illegal, margin trading was common until 2000, when officials started to strictly limit its practice.

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