Bears over­take bulls

Business monthly (Egypt) - - IN DEPTH -

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.

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