Egypt con­tin­ues surge on cur­rency de­val­u­a­tion MIDEAST STOCK MAR­KETS

Kuwait Times - - BUSINESS -

Egypt’s stock mar­ket rose sharply for a third day yes­ter­day in re­sponse to the de­val­u­a­tion of the Egyp­tian pound which has raised hopes for cap­i­tal in­flows, while higher oil prices boosted petro­chem­i­cal shares in Saudi Ara­bia.

The Egyp­tian blue chip in­dex jumped 5.4 per­cent in its heav­i­est trade since March, bringing its gains to 15.6 per­cent since the pound’s peg to the dol­lar was aban­doned on Thurs­day. The broader EGX100 in­dex added 2.5 per­cent. The de­val­u­a­tion has raised hopes for ma­jor in­flows of for­eign money into Egyp­tian mar­kets in com­ing months. Re­gional in­vest­ment bank Arqaam Cap­i­tal said it was go­ing over­weight on Egypt in the wake of the de­val­u­a­tion.

It es­ti­mated $4.5 bil­lion of for­eign money - or about 16 per­cent of the stock mar­ket’s to­tal cap­i­tal­i­sa­tion would flow into the mar­ket in the next year if for­eign own­er­ship of stocks rose to 25 per­cent, a nor­mal level for an emerg­ing mar­ket.

Arqaam said it favoured banks that would ben­e­fit from the 3 per­cent­age point in­ter­est rate hike that ac­com­pa­nied the de­val­u­a­tion, such as Com­mer­cial In­ter­na­tional Bank (CIB) , and firms whose in­come would be boosted by a weaker pound such as Global Tele­com. It said it was wary of com­pa­nies that would have trou­ble pass­ing on higher im­port costs to con­sumers, such as Edita Food In­dus­tries.

The in­crease in Egyp­tian in­ter­est rates will sup­port banks’ prof­itabil­ity given their large ex­po­sure to short­term gov­ern­ment se­cu­ri­ties, Moody’s In­vestors Ser­vice said. CIB shares jumped 8.3 per­cent yes­ter­day, while Global Tele­com surged 7.7 per­cent and Edita climbed 7.9 per­cent.

De­spite the mar­ket’s eu­pho­ria, Wafik Da­wood, port­fo­lio man­ager at Cairo-based Com­pass Cap­i­tal, said stocks’ rise would not be one-way. “The mar­ket is re-rat­ing as­sets, pric­ing in the weaker pound, but the trend is likely to be chal­lenged by the su­per 300 ba­sis point hike in in­ter­est rates,” he said. “This will at­tract money be­cause of the carry trade, but bor­row­ers will be hit.”

He added that while the long-term pic­ture looked pos­i­tive, there would be short-term volatil­ity. “Un­til there is hard ev­i­dence of fund in­flows stick­ing around long enough, mar­kets will be un­able to un­lock their true po­ten­tial.”

SAUDI

Saudi Ara­bia’s in­dex climbed 1.5 per­cent, tak­ing its gains since hit­ting a 2016 low on Oct. 3 to 14.4 per­cent. The mar­ket has been surg­ing since Riyadh’s $17.5 bil­lion for­eign bond is­sue last month eased con­cern about gov­ern­ment fi­nances and bank­ing sys­tem liq­uid­ity. Al Ra­jhi Cap­i­tal said im­prov­ing liq­uid­ity and a slight de­cline in Saudi in­ter­bank money rates had en­cour­aged in­vestors to re­turn to stocks. Petro­chem­i­cal pro­duc­ers were buoyed by a 1.2 per­cent re­bound in Brent oil fu­tures, with the sec­tor’s in­dex climb­ing 1.8 per­cent.

The re­tail sec­tor out­per­formed, ex­tend­ing Sun­day’s strong gains. Ap­parel and mall op­er­a­tor Fawaz Al­hokair gained 2.9 per­cent. But food pro­ducer Savola Group, which has busi­ness lines in Egypt, dropped 0.3 per­cent af­ter say­ing the de­val­u­a­tion of the Egyp­tian pound would hit its fourth-quar­ter re­sults by 171 mil­lion riyals ($45.6 mil­lion).

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