Bears overtake bulls
After closing a triumphant 2014 as one of the top performing global equity indices, the EGX 30 has so far in 2015 placed as the seventh-worst performing index in the world in dollar terms. Within a few months, Egypt’s stock market has transformed from a bull to a bear market after plummeting by more than 20 percent from its peak on Feb. 4. The period from June 15 to July 15 saw market indices slip yet again, extending their losses for the year to 11.7 percent for the EGX 30 and 24.3 percent for the EGX 70. The EGX 30 fell 7.4 percent during the period to 7,882.6, while EGX 70 fell 3.8 percent to 427.9. Declines outnumbered advances two-to-one.
What’s to blame for the sudden transformation isn’t crystal clear, but market observers point to several factors: First, there have been low levels of trading liquidity and second, a lack of market-moving events in recent months, especially after investors lost interest following the Egypt Economic Development Conference in March, which has yet to bear much fruit. Three, proposed capital market regulations such as capital gains and dividend taxes thwarted the market’s recovery, and even the postponement of the capital gains tax did not have the positive impact that was expected. Four, Egypt still lacks a functioning parliament. Lastly and probably most importantly, the Central Bank has been incrementally letting the Egyptian pound sink, with no clear monetary policy in evidence. With a strengthening U.S. dollar vis-à-vis other emerging-market currencies as well as the euro, foreign investors prefer to wait safely on the sidelines.
Another theory is that Egypt’s bull market of last year was not broad-based but rather driven in large part by the 800pound gorilla of the EGX 30, CIB. Now with the financial institution’s shares contracting 7 percent to LE 54.58, the market’s main index is succumbing to pressure. Indeed, stocks have been driven down during the period, with large caps giving up earlier gains. GB Auto (down 20 percent to LE 3.75), AMOC (down 17 percent to LE 39), EFG Hermes (down 16 percent to LE 11.89), and Ezzsteel (down 14 percent to LE 7.73) all ended the period in red. Further exacerbating the market’s decline, large-cap real estate developers have taken hits as well, with Heliopolis Housing (down 14 percent to LE 49.33), Nasr City Housing (down 14 percent to LE 24.34), SODIC (down 12 percent to LE 10.07), Palm Hills Developments (down 10 percent to LE 2.49) and TMG Holding (down 9 percent to LE 7.84) all dropping. Even the market’s most recent listing, Emaar Misr for Development, fell 7 percent below its IPO price to LE 3.52. The select few stocks that ended the period on a positive note included Amer Group (up 7.5 percent to LE 1.00), which is likely facing a spin-off, and newcomer Edita Food Industries (up 3.6 percent to LE 29), which continues to surprise everyone by outperforming the market since its April debut.
Granted, trading during summer and Ramadan is usually thin, and the market doesn’t move much. Anecdotally, Egyptian equities tend to perform better from August to January. The coming period will test this theory.