CAIRO: After the May 5 price hikes, the Egyptian Stock Exchange rang bells of distress, collapsing several times during the summer, with real estate and construction sectors among the hardest hit.
The notorious May 5 decision fed the bears, and the bourse has plunged 40 percent since then as inflation surged along with operating costs for energy-intensive industries. Looking forward, some analysts are optimistic, saying that the summer market crash was a correction.
“The market still has upside potential and can gain 30-40 percent by mid 2009, said Sherif El Sweify, technical analyst at Delta Rasmala Securities. “We expect real estate stocks to rebound because they sharply fell over the last period. They could rise up to 100 percent, pulling construction stocks up as well because these two sectors are positively correlated.
Analysts explained that most construction stocks, specifically big caps, were buoyant to the bourse summer slump and were able to escape some of the market losses.
“Construction stocks stood out as more resilient to sharp declines than other sectors, especially OCI [Orascom Construction Industries] and El Sewedy Cables, with the exception of companies that are only operational in the local market such as cement companies, said Tarek Shahin, construction analyst at Beltone Financial.
El Sweify forecast that the sector will resume its uptrend – with some stocks gaining up to 80 percent on the long-term – explaining infrastructure never stops in an emerging country. “There will always be construction projects such as infrastructure development, bridges, roads, etc.
OCI, Egypt’s largest builder by market value, witnessed sharp fluctuations but “will continue to rise in the future when the market picks up again, Shahin said.
The stock will show an upside potential of 80 percent within a year, El Sweify said, putting his target long-term price for OCI at LE 580-600, compared to the current LE 350-360.
The company recently expanded its fertilizer business and, as Shahin pointed out, the diversification element helped the stock go up in the summer.
El Sewedy Cables, one of the biggest cable manufacturers in the Middle East, sailed more smoothly this summer. “The least negatively affected stock by the market’s tumble, it remained almost flat.and investors expect a lot from it over the long-term, El Sweify said.
“The company is solid. By the sum of all parts, we are looking at a company that is diversified geographically, Shahin said, crediting the company’s uptrend to its growing cables and power production as well as expansion plans.
El Sweify predicted the stock will maintain strong performance over the long-term amid a boom in construction projects.
Al Ezz Steel Rebars was not as resilient, losing some value since May. “For the most part, it did not witness a crash because people are slowly studying prospects of this company, Shahin added.
Analysts explained that capital increase in Egypt’s largest steel producer as well as expansion operations helped sustain the stock to a large degree. The company increased its production since January 2008, particularly flat steel products from Ezz Dekheila, of which Ezz Steel Rebars owns a 50.3 percent stake.
“Technically, the stock is trading around historical resistance levels of 26-27 percent, El Sweify explained. “For the medium-term, the stock will continue to see historical highs.
Shahin added that investors are playing on both strengths and weaknesses in the company. “The stock is strong on the medium-term due to expansions in Egypt and abroad. But it’s a ‘stay away’ also in light of any decisions the government could take that would adversely affect the company similar to the May decisions.
Egyptian steel producers are currently under investigations by the Egyptian Competition Authority for monopoly allegations. If indicted, producers would face penalties between LE 100-300 million, under Egypt’s newly approved anti-monopoly law.
Stocks in construction’s sister sector, real estate, have skidded sharply since May. The general price hikes, soaring inflation rates (which hit 22 percent) and the US sub-prime crisis too their toll on real estate stocks, El Sweify said.
Egypt’s real estate sector is currently witnessing hidden demand from investors who buy housing units and freeze them to be sold later at higher prices, El Sweify added. “Once these units appear in the market, supply will increase, prices will go down.and real estate will stumble.
Summer 2008 was unkind to one of Egypt’s largest real estate developers. Talaat Moustafa Group’s stock has so far witnessed one of the sector’s sharpest fluctuations, rapidly hitting green and red levels.
“The stock has been trading on a bearish trend ever since it got listed [last November], said El Sweify explaining that the stock is currently undervalued compared to the size of its land bank and real estate projects.
Shares of TMG posted its heaviest declines in August when rumors about its chairman’s connection in a murder case reached the market, dragging the stock to an all-time low of LE 4.86 in early September. The stock’s year high was at LE 13.47.
Shares in the firm fell sharply last week (25 percent in two days) after the arrest of the company’s former chairman in connection to a murder case, and then rose steadily for four days until Monday, leaping 43 percent.
“It’s a psychological effect in the market [that goes along this line]: ‘Buy the rumor, sell the fact’, El Sweify explained. “When rumors were flying about TMG, people sold. Once rumors discounted and became a fact, people bought again.
He clarified that the market digested news about the company’s chairman, and that investors were reassured about the company’s solid position, following the appointment of a new chairman.
El Sweify was quick to point that TMG could reverse trends again and enter a losing streak. “If that happens, and shares decline again, investors who bought in the stock will be caught in a bull trap.
He clarified that a bull trap is a false signal indicating that a declining trend in a stock has reversed and is heading upwards when, in fact, the security will continue to decline.
“To escape the bull trap, the stock has to maintain uptrend for at least a week, he said. Shares of TMG have plummeted almost 9 percent since Tuesday.
Meanwhile, Sixth of October Development and Investment (SODIC) is currently undervalued and is trading at very cheap prices, El Sweify said. “Potential for the stock is almost 100 percent up for long-term investors.
To read the other stories in our bi-monthly special focus on Egypt s real estate and construction sectors, click here:http://thedailynewsegypt.com/article.aspx?ArticleID=16385http://thedailynewsegypt.com/article.aspx?ArticleID=16384http://thedailynewsegypt.com/article.aspx?ArticleID=16382