EGX in a chronic crisis… Is it time to intervene?

Fatma Salah
7 Min Read

The Egyptian Exchange (EGX) has been experiencing bitter losses, extreme fluctuations, and a collapse in the market value, which reached EGP 1 trillion in 2018 and about EGP 600bn this year.

This is taking into account the decline in the value of the EGP, which increases the rate of decline. Meanwhile, foreign traders intensified their sales in rich stocks in a natural reflection of what the stock market had reached to record EGP 32bn as a net sale since the beginning of 2020.

The performance of the stock market indices declined at the end of Sunday’s trading session, as the main index EGX30 fell by 2.35% to reach the level of 9008.89 points.

Yasser Al-Masry — Managing Director of Arab African International Securities — said that the market situation and the repeated declines is forcing foreign investors — including institutions and individuals — to leave and go to safer havens, even if at high prices, with the disappearance of any relative representation in the Morgan Stanley index.

He explained that the current time is suitable for government institutions with strong financial solvency — such as insurance, endowments, and postal services — to enter and invest in Egyptian stocks, expecting that they will achieve good profits in light of the low prices and the approaching return to a rise in the event of the entry of purchasing power from institutions. Said rise will encourage individuals to pump liquidity in shares and send a message of reassurance that the market is still a good investment alternative.

He also attributed the disappearance of stocks as an investment option in the previous period to the fierce competition around saving certificates at banks, especially investment certificates with high returns that were put forward with the monetary tightening policy from central banks around the world.

Al-Masry added that as a result, dealers rethink many times, and liquidity moved from local stocks to savings banks due to the low risk and high return compared to what stocks achieve in the EGX.

He called on all concerned parties to play their role so that there would be a minister or a specialised sponsor of the equity investment system, because it ultimately affects the Egyptian economy.

Furthermore, Al-Masry stressed that the current time is not appropriate for the implementation of government proposals given the lack of appetite of dealers to pump any liquidity into the market, which will lead to low prices that lose their real values.

Despite the floatation of the EGP in 2016 and the influx of foreign investments strongly during the following two years — which recorded a net purchase of about EGP 20bn — it did not intercede for the market in the following years, and sales accelerated since the beginning of 2019 until the end of trading yesterday, recording a net sale of EGP 33.6bn. This brought the net transactions of foreigners in the EGX since the first flotation of the pound in 2016 to about EGP 13.6bn.

Additionally, the EGX70 index of small- and medium-sized companies decreased by 1.27% to reach the level of 1699.4 points, and the EGX100 index declined by 1.56% to reach the level of 2507.9 points.

Mohamed Fathallah — Managing Director of Blom Egypt Securities — said that there are fears on the part of foreigners about Egypt’s exit from the Morgan Stanley index, which prompted an increase in foreign sales during the past sessions until the shares reached squalid levels.

Fathallah added that the capital market is in dire need of government intervention to save the market from its depression and restore the stock market to its rightful place, pointing out that the situation is in dire need of a market maker, especially since its role is very important.

He also pointed out that the Egyptian market is declining in its attractiveness amid competition from emerging markets, especially since foreign investors are always looking for an opportunity in a highly liquid market, which has a diversity of sectors and different propositions.

Regarding the government’s proposals, he believes that credibility is very important to attract investors to subscribe to the proposals, so it is necessary to commit to the proposals to ensure the credibility of the market.

Furthermore, the market recorded trading values ​​of EGP 556.8m by dealing on 275m shares, executing 24,400 transactions after trading on 184 shares, 15 of which rose and 88 decreased, while the levels of 81 shares did not change.

The market capitalisation of the shares listed in the in-cabinet market recorded a level of EGP 608.4bn, losing about EGP 13bn.

Amer Abdel Qader — Head of the Brokerage Sector for Development at Pioneers Securities — said that the market witnessed large sales by foreigners that exceeded EGP 2bn, pointing out that the turmoil affected all markets, not only the Egyptian market.

He added that it is possible to seize the current opportunities in the market by focusing on stocks with expected profitability through cash dividends and generous returns.

Abdel Qader also pointed out that brokerage firms are competing for deals, and that the secondary market’s transactions are not real, all of which are deals, expecting that market conditions will see some improvement within two months.

Moreover, he noted that investors should keep stocks and not convert book losses into real losses by selling at a cheap price, stressing that the market suffers from a problem in the decline in the level of liquidity and that new blood must be pumped.

The net transactions of Egyptians alone tended to purchasing, recording EGP 80m, with a percentage of 80.67% of buying and selling transactions on shares, while the net transactions of Arabs and foreigners tended to selling, recording EGP 60.6m and EGP 19.3m, respectively, with an acquisition rate of buying and selling operations that reached 11.34% and 7.99%, respectively.

Share This Article