CAIRO: Egypt’s stock exchange will reopen for trading on Tuesday, after being closed for a month, which came as a relief to analysts and traders.
Angus Blair, head of research at Cairo-based investment bank Beltone Financial, told Daily News Egypt that it is vital to open the market as soon as possible and achieve a “new sense of normal, whatever it will be.”
Egypt decided to suspend trading on the market after losing almost 20 percent of its value on Jan. 26 and 27, as investors pulled out on news of nationwide protests calling for the ouster of former president Hosni Mubarak.
Several decisions to reopen the market were delayed, at one point due to sudden bank closures due to employee strikes at public sector banks. But since banks opened on Feb. 20, the stock market has remained closed, a decision that remains unclear to many.
The MSCI has warned that it is mulling removing Egypt’s bourse from the index, which is seen as devastating to analysts.
“It is highly unusual that the market has remained closed for this long. Now talks that Egypt will be delisted from the MSCI indicates the seriousness of the matter,” Blair said.
“It is the most open, transparent and best known market in the region…no matter what happens, it must open,” he said, adding that the “over-conservative closure does not make Egypt look good…and works against market interest.”
“The longer it is closed, the more investors lose confidence,” Blair said.
There are fears that the market will fall to fresh lows as wary investors look to buy out of Egyptian companies, concerns which have been renewed as unrest spreads in the region.
Global Depository Receipts on Egyptian companies have been trading on international markets all along, and performing none too poorly, which gives some hope that a crash is not inevitable.
“If we look at GDRs as indicators, some [Egyptian stocks] will rise and others will fall,” Blair said, adding that whatever the outcome, the market must open for trading.
News of businessmen being arrested and assets frozen is also making investors wary about specific stocks, such as those associated with steel tycoon and former prominent NDP member Ahmed Ezz; as well as Palm Hills Development, whose chairman Yasseen Mansour was referred to court by an order from the public prosecutor. He faces charges of wasting public funds.
While these factors will likely see renewed selling in the Egyptian market, Karim Helal, CEO of CI Capital, told DNE, “I do not expect to see a collapse as happened in the wake of the 2008 global crisis when our panic selling from local investors turned it into a self-fulfilling prophecy.”
“Sure there will be strong selling pressure especially in the first few days as investors would have been locked in for such a long time and they will need to monetize,” he added.
Helal had previously called for the decision saying that “while things are not fully back to normal, banks are, and it is important to get the whole economy back in working mode.”
“A key feature of any credible stock market is its liquidity and while there was some cause to shut it earlier, I don’t believe these are valid now,” he said.
Before the decision to reopen was announced, Helal had said the notion to keep the market closed indefinitely for fear of sustaining losses upon resuming was “totally naïve and self-serving and could cause irreparable damage to its credibility as an important source of much needed capital to fund economic growth.”
Mike Millar, head of research at investment firm Naeem Holding, told DNE he welcomed the decision to resume trading, “as there needs to be price discovery.”
While Millar thought that suspending trading in the bourse during the height of the protests and demonstrations made sense, he said there was no reason to suspend it any further.
“It critical for the economy that the capital markets function again,” he added.
The MSCI, a leader in stock market indices, is considering removing the country’s bourse from its emerging markets index if it remains closed for 40 consecutive business days.
Sebastien Lieblich, vice president of index research and management at MSCI in Geneva, told Reuters that MSCI has been monitoring the situation since the bourse closed and will continue to do so for a period of 40 business days before having to take any decisive action.
Reacting to this news, Millar pointed out that according to MSCI’s methodology statements and notifications, where there is complete and lengthy market closure, the situation is reviewed on a case by case basis and there is no automatic withdrawal for indices.
Millar added that there are buyers eyeing stocks of telecom companies and consumer goods.
Helal said that since the bourse has decided to open, he does not think it will be removed from the emerging market index.