Recovery expected in EGX performance due to government’s incentives package

Shaimaa Raafat
5 Min Read
A general view of the Egyptian Exchange (EGX) in Cairo August 18, 2013. Egypt's stock market fell sharply on Sunday as it resumed trading after hundreds of people were killed in a crackdown by the army-backed government on supporters of the Muslim Brotherhood. Banks and the stock market reopened for the first time since Wednesday's carnage, with shares rapidly falling 2.5 percent. REUTERS/Louafi Larbi (EGYPT - Tags: POLITICS CIVIL UNREST BUSINESS)

The Egyptian Exchange (EGX) tests the market’s response to the recent incentives announced by Prime Minister Mostafa Madbouly, to support the capital market and improve the investment and business environment.

Madbouly directed that concerned authorities reduce trading expenses on the Egyptian Exchange (EGX) and service charge in the Misr for Central Clearing, Depository and Registry (MCDR).

He also ordered the establishment of a special unit in the General Authority for Investment and Free Zones (GAFI) to provide a fast track for stock exchange companies, as well as study the amendment of the preferred shares system so that there is greater flexibility and freedom in their issuance.

It was also agreed to reduce the tax rate on individual investors through stock funds to 5% on the profit achieved, exempt equity investment funds from all taxes on shares, and assign the fund to supply them without opening tax files for investors, and motivate venture capital investment funds through exempting their dealings in the unregistered shares of start-up companies and a tax reduction for policyholders if 5% profits are achieved.

Financial market experts expect the stock market to rebound during this week’s trading in celebration of the new incentives package. Mohamed Othman, head of the technical analysis department at Al Ahly Pharos Company, said that the first resistance level is expected to reach 11,600 points, followed by the main resistance level at 11,730 points.

The benchmark index EGX30 closed at 11,573.14 points, recording a decline of 0.34%. EGX70 EWI posted 1% gain concluding the period at 2,186.47 points, while S&P index rose by 0.08% and concluded the period at 1,817.99 points.

Ahmed Abu El-Saad, Managing Director of Azimut for Funds and Portfolio Management, said that the government’s decisions to activate and stimulate the stock market are very positive, especially in light of adhering to the imposition of tax.

He pointed out that funds that invest in stocks are exempted from stamp duty and income and dividend tax. A 5% tax will be applied to individuals, and 15% to companies, on the profits they make.

He added that the investment funds will collect taxes from individual investors and companies, and they will supply them to the Ministry of Finance.

Shawkat El Maraghy, Managing Director of Prime Securities, said that the decision is largely positive for the EGX, and supports market transactions.

He pointed out that the timing was crucial to get a positive reaction from the market, especially after the large losses suffered by individual portfolios, but he bet on a long-term positive impact on the market in general.

Mohamed Mostafa, Managing Director of the Arab African Investments Management (AAIM), expected that the market will witness a radical change in the performance of equity investment funds, which now enjoy tax exemptions and an incentive to invest.

He stated that the decision is a boost to the return of equity funds, bringing them to their golden age, while the position of the income tax for investment funds will be explained.

He added that the EGX will witness a long-term recovery and greater stability of transactions, after overcoming the “Margin Call” crisis.

Rania Yaqoub, a board member in the EGX, said that the decisions that were taken are positive and are for the best interest of all market parties. They change the features of the tax law on the EGX issued since 2014.

She added that these amendments are the most fair for the capital market, and will attract more investments, as well as attract more investment funds to return to the capital market.

She explained that the application of the opportunity cost is a strong motivator for investors in the market, which is awaiting positive performance during the coming period.

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