The Egyptian Exchange (EGX) has witnessed a series of record highs since the year’s start, culminating in an unprecedented historical peak of 25,000 points—a 69.2% increase since January.
The main index hit a five-year high, reaching 3,026 points in October 2019, with market capitalization peaking last November at $37 billion. However, market traders suggest that when adjusted for the rising dollar exchange rate, these peaks may not hold in dollar terms.
Amr Al-Alfy, Head of Equity Strategies at Thndr securities brokerage, observed that EGX’s recent surge is a catch-up to the growth seen in other emerging and frontier markets.
Significant gains in shares of Abu Qir Fertilizers, Mobco, Eastern Company, and Talaat Moustafa Group propelled the index past 20,000 points, with CIB driving it further to 25,000 points.
Al-Alfy noted that when converted to dollars using the Central Bank of Egypt’s (CBE) official exchange rate, the index stands approximately 20% below its historical peak, suggesting room for a similar magnitude of growth.
He sees potential for expansion in the banking sector, particularly if interest rates increase, as well as in real estate and tourism.
Egypt’s dollar liquidity has been strained since the Russian-Ukrainian conflict began, leading to the Egyptian pound’s devaluation thrice since March 2022. The pound has fallen roughly 25% against the dollar this year and 50% since last March.
Mohamed Ayyad, Non-Executive Chairperson of Prime Holding, emphasized the exchange rate’s significant impact on the stock market’s ascent. He argued that the rise would have been less pronounced without the pound’s depreciation, which has led to asset revaluation, yet stock prices and company valuations remain below their true levels.
Mohamed Maher, President of the Egyptian Securities Association, concurred that the main index’s peaks, when converted to dollars, do not represent historical highs. Nevertheless, he sees promising growth opportunities across various sectors. The market values of traded stocks have yet to reach companies’ fair value, as prices are heavily influenced by the elevated exchange rate.
Maher highlighted sectors with export potential, real estate, non-banking financial services, and energy as promising areas. He also pointed out that defensive sectors like education, health, and building materials remain resilient during crises and have not experienced significant increases.
A recent survey recorded the largest trading values in dollars last November, totaling $2.3 billion.
Mohamed Abdel Hakim, Head of the Research Department at Ostoul Securities Brokerage, clarified that while the index has not reached new historical highs in dollar terms, it maintains an upward trajectory in both pound and dollar contexts.
He added that some stocks still have many growth opportunities, amid high inflation rates and positive business results of companies. Additionally, the fair values of stocks are in a state of constant change depending on the results of the companies’ business and profitability, and some stocks have not reached their estimated fair value.
He recommended turning to defensive sectors, as many of the stocks in this sector are trading at less than their fair value, in addition to the real estate sector, which has many growth opportunities and whose shares are also trading at less than their fair value.
He added that further rise in interest rates will affect the financial market negatively, according to traditional estimates that investors will prefer to turn to guaranteed investment channels.
Market traders expect the rise to continue, especially in light of expectations of movement in the exchange rate of the pound or the dollar during the coming period, which boosts expectations of a rise in the market.
Last week, the main index of the Egyptian Exchange, EGX30, declined by about 0.20% to 24,686 points, while the EGX70 EWI rose by 0.22% to 5,286.5 points. The EGX 30 Capped declined by 0.14% to 29,614 points, and the EGX100 EWI recorded an increase of 0.47% to 7,682 points.
