CAIRO: Egyptian shares dipped on Wednesday because retail investors sold off after a decision to remove limits on some share price fluctuations, dealers said. The Capital Market Authority said on Wednesday it was abolishing the limits on single-session price fluctuations for the shares of 45 companies in an attempt to prevent price manipulation.
Lifting the price limits is expected to improve the efficiency of the market, increase its liquidity and depth of trading and limit the ability of dealers to manipulate prices, the authority said in a statement.
The change, which will bring the total number of companies with no price limit to 100, will take effect on June 17.
For the other shares trading is suspended once the price has moved more than 5 percent up or down in one session.
In the past years some securities that have price limits could run the risk of having their price influenced in such a way that is contradictory to the main objective of putting a price limit in the first place, the statement said.
Expanding the circle of securities that have no price limit will do away with offers and bids at the maximum price, which gives speculators the space to send out misleading signs to investors, which could harm them, it added.
The news that they will remove the 5-percent ceiling on 45 stocks has created a bearish sentiment among local retail investors and the market reacted negatively, said Mohamed Radwan of Delta Securities.
The manipulation of certain stocks will not happen anymore, so these stocks are being dumped today. However, I think it s a very good step to upgrade the market mechanism and to make it more mature in the future, he added.
But another dealer who preferred to remain anonymous said the decision to remove the limit on price fluctuations did not have a negative impact and that the shares dipped on a correction in housing stocks.
Removing the limit is definitely a move in the right direction as it does away with price manipulation, he said.
The housing and real estate share prices were a bit exaggerated, so what s happening now is a correction.
Alexandria Real Estate Investment and Development, the most heavily traded stock by turnover, closed 5 percent down at LE 336.17 ($58.98). Heliopolis Housing closed 9.1 percent down at LE 390.60.
Alexandria Real Estate and most stocks with a 5 percent ceiling fell the 5 percent today due to the decision to lift the price limit, Radwan said.
Shares in the housing sector rose in May after the government sold tracts of land near Cairo in several auctions for some $3 billion.
Real estate prices increased, prompting brokerage houses to adjust their valuation of real estate companies.
Egypt s Case 30 Index closed 0.83 percent down at 7,610.67, while the benchmark Hermes Index closed 0.84 percent down at 68,174.08. The broader CIBC-100 closed 1.67 down at 345.75.
Stock exchange chairman Maged Shawky said companies that are trading with no price limits are the most liquid and most attractive to investors.
Experience shows that investors, especially institutions and foreigners, are more attracted to stocks that are liquid, freely traded without any price limitations, he said.
When you put price limits, you are indirectly calculating the risk for investors, so sometimes they work against it and manipulate the price. But when you open it, it s not easy to manipulate pricing … because risk is uncertain.
The Egyptian stock exchange exempted some stocks from the price fluctuation limits in July 2002, starting with 12 stocks.
The 55 stocks now trading with no price limit account for 80 percent of trade and almost 50 percent of market capitalization, Shawky said.
Among the main criteria for the company to have the price limit lifted are that 15 percent of the shares are freefloat and that it has been traded for at least 220 days and by at least 20 brokerages, Shawky added.