IN DEPTH: Experts explain Egypt's recent stock market rally

Sabah Hamamou
7 Min Read

CAIRO: Starting late February, Egypt’s bourse has had investors more optimistic than in recent months with an 11-week rally that has since tapered off slightly on the back of breaking news from some of its top movers.

Egypt s benchmark stock index fell 3.48 percent Thursday to close at 5,665 points while the broader EGX 70 index lost 2.1 percent to 571 points. Foreign and Arab investors were net sellers Thursday among medium volume trading of LE 1.035 billion.

Some analysts attributed the drop to the Capital Markets Authority’s (CMA) rejection of France Telecom’s (FT) bid to buy out Orascom Telecom’s (OT) stake in mobile telecom giant Mobinil.

But a look at the broader picture shows that the market has been performing at healthier levels since it was hit by the effects of the economic crisis in late 2008 and the first two months of 2009.

On Feb. 24, the stock market closed at 3,473 points, and since then, it has surged 63 percent to Thursday’s closing numbers.

The 11-week incline began waning in mid-May as news from top movers Talaat Moustafa Group (TMG), OT and Mobinil resulted in a more fluctuating market.

“Investors were [expecting] liquidity from the FT/OT deal to come to the market, and were disappointed by the news. Also, some say the rejection is not a good sign to foreign investors, said Hitham Abdel Samei, technical analyst and member of the Egyptian Society of Technical Analysts (ESTA).

Abdel Samei said the market is seeing a correction after the 11-week rally and expects it to get back on track.

“The remarkable thing is that blue ships stocks are still on the high level they achieved in the rally and were not affected by the [slump], he added.

Mohamed Ebeid, managing director of western institutional sales at Cairo-based investment bank EFG-Hermes, tied the recent surge in Egypt’s market to a global rally. “Most of emerging markets have been rallying since the beginning of the year, such as Russia, India and China, Ebeid told Daily News Egypt in a phone interview.

According to a perception survey conducted by Pharos Holding in late April, 60 percent of respondents said that the EGX 30 will top the 6,500-point mark by the end of 2009.

“The optimism revealed by these results is a pleasant surprise, Hussein El-Sherbiny, managing partner and head of brokerage at Pharos, said in a statement about the survey results.

“Retail investors have been through a tough year; as opposed to becoming averse to investing in equities, the results show that investors are adopting more seasoned investment expectations, he added.

Of the 300 retail investors surveyed, 27 said the index would end the year between 5,000 and 6,000 points.

The worst is over?

“There is a strong feeling that the worse of the financial crisis is behind us. The Egyptian market, which depreciated by 75 percent since last August, needs to see 300 percent growth to reach its pervious peak, Hany Tawfeek, chairman of the Arab Private Equity Association, told Daily News Egypt.

Asked which stocks would be the best performers in 2009, 16 percent predicted Orascom Telecom to top the list, followed by 10 percent for Telecom Egypt. Orascom Construction Industries tied with Talaat Moustafa Group in third place with 8 percent of the votes, followed by EFG Hermes with 4 percent.

“These results are very much in line with our 2009 Strategy Report, They affirm a sector-based outlook led by the telecom industry, said Suha Najjar, managing partner and head of research at Pharos, in the statement.

The survey results came out well before Hisham Talaat Moustafa, former CEO of TMG, was sentenced to death last Thursday for conspiring to kill Lebanese pop singer Suzan Tamim.

The court verdict reflected clearly on the Egyptian stock market, dragging it 4 percent last week.

“The verdict results will, affect the TMG’s shares in the market, in the short-term. In the long-term, investors should wait and see the how the [current] management will run the group, this will take to the end of the year, Mohamed Radwan, head of foreign sales at Pharos, told Daily News Egypt.

The global rally

“If we look at the Russian market, it has increased 65 percent since the beginning of 2009. In addition, the Russia currency has appreciated 10 percent against the US dollar, which means that investors in the Russian market have made 75 percent on their investment since the beginning of the year, Ebeid said.

In early May, US-based investment bank Morgan Stanly advised investors to “increase exposure to the MSCI Arabian Markets again.:

“The MSCI Arabian Markets index has underperformed the MSCI Emerging Markets index by 23 percent since October, read the report.

Still, Ebeid said, “We can’t neglect that 85 percent of the [Egyptian] market are retail investors, not institutional, adding that “the Central Bank of Egypt’s decisions to cut interest rates within three months and the increase of liquidity were other reasons to explain the rally.

CBE cut interest rates three times between mid-February and Mid-May, bringing the overnight deposit rate to 9.5 percent and the overnight lending rate to 11 percent.

“The crises mostly affected the US and Europe, while emerging markets are better places to invest now, said Tawfeek.

“Also, the high dividends paid in the last few months, compared to the low price levels of most shares, made the P/E ratio (price-to-earning) attractive to investors, Radwan said.

Even before Morgan Stanly issued its report, foreign investors were active in the local market, “mainly concentrated on blue chips, said Abdel Samei.

“No doubt, the performance in the global financial market has reflected on the Egyptian market. There is a global [sentiment] of optimism, however, it’s clear that the crisis is [not over], he added.

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