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Stock market panic resumes

CAIRO: The stock market continued its downward trend yesterday after an apparent lull on Monday. The CASE 30 index, which tracks the top 30 stocks on the Cairo and Alexandria Stock Exchanges, dropped by 2.59 percent, closing at 6,345.56 points on Tuesday. The index has been on the decline for five consecutive days of trading …


CAIRO: The stock market continued its downward trend yesterday after an apparent lull on Monday. The CASE 30 index, which tracks the top 30 stocks on the Cairo and Alexandria Stock Exchanges, dropped by 2.59 percent, closing at 6,345.56 points on Tuesday.

The index has been on the decline for five consecutive days of trading starting last Thursday, when it dropped by 2.5 percent. The panic starts with big investors, and when smaller investors follow they create this trend, says Mahmoud Soheim, head of research at Naeem Holdings.

Soheim believes that the initial selling last week was related to regional political conditions, specifically with regard to Iran s nuclear situation. Nevertheless, he adds that this latest correction was necessary despite the dramatic decline that occurred in the middle of March.

This had to happen, says Soheim, because there were some stocks that were extremely overpriced. They were not standing on solid ground.

The trend continued with greater intensity when trading resumed after the weekend and the CASE 30 index fell by 5.4 percent on Sunday.

Nashwa Saleh, head of research at HC Brokerage, believes that Saturday s sectarian violence in Alexandria exacerbated investors concerns of political uncertainty and contributed to bearish sentiments.

Share prices seemed to stabilize in initial trading on Monday, but a flurry of selling erupted in the last hour of the session. Retail investors accounted for some 83 percent of trading on that day, according to a report from EFG-Hermes.

Retail investors generally trade more frequently than institutional investors, explains Saleh, and they don t necessarily base their decisions on fundamentals. So as the proportion of retail investors increases, this in turn increases the market s volatility. This resulted in an overall decline that was very slight on Monday followed by yesterday s resumption of panic selling, and prices of some shares have reached a point that some analysts believe will make them attractive buys.

At least we ve got some fundamentally strong companies, says Soheim. Even if the decline continues, prices will drop to a certain limit beyond which investors will return to the market.

The market is also supported by positive macroeconomic fundamentals such as lower taxes and the stabilization of the Egyptian pound. Everything on the macroeconomic front is still looking good, says Saleh. There are no extra positive surprises. I believe that everything on the macroeconomic front is more or less already factored into the stock market.

Nevertheless, ongoing political concerns have resulted in a cautious market. Further positive surprises on the macroeconomic front may push up the market, says Saleh. However, any negative event on the political front would do the opposite of course.

Soheim adds that investors will likely be encouraged soon by the release of first quarter earnings, which are due to be announced in May and June. Once the first quarter results are published I think faith will come again and things will be in the right position, she adds.

The volatility is also a natural part of the stock market s cycle. I m not worried, says Soheim. On the contrary, you cannot have a market that is going up forever nor one that is going down forever. It will reach a point where investors find it attractive again to get in, and they will get in.

Investors should be wary at any rate of excessive concentration in their portfolios.

Folk wisdom is filled with all sorts of advice that we usually ignore, says Saleh. Don t put all your eggs in one basket is the simplest way of conveying the same message as proven empirically by many formulas and years of study.

Retail investors also need to seek appropriate methods of investing that may not include direct participation in the stock market.

People cannot put all their savings in the stock market, explains Saleh, because with high returns there is always high risk and it is not supposed to be gambling. For small investors, therefore, mutual funds are the best way to get market exposure.

Topics: FJP

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