EGX30: A temporary hiccup

Safeya Mounir , Tuesday 7 May 2024

Despite the stock market downturn, economic experts are hopeful stability in the foreign exchange market will see stock prices rise, reports Safeya Mounir

EGX30: A temporary hiccup


EGX30, the main index of the Egyptian Stock Exchange, shed 7,000 points, or 21 per cent of its value, between 11 March and 1 May. The downturn was propelled by intense selling by local and international institutional investors across a majority of stocks.

Ahmed Abul-Saad, CEO of Azimut Egypt and a member of the stock exchange board, said the decline was to be expected given government decisions on 6 March to raise interest rates by six per cent and liberalise the exchange rate.

Holdings in shares that were valued based on the dollar price in the parallel market — around LE65 days before the floatation — were liquidated as official and parallel market exchange rates converged around LE47-49, and with the end of the dollar shortage market correction was inevitable. For two years foreign investors had been unable to repatriate their profits. Now they are selling their equities to send the profits back home.

Amr Hussein Elalfy, chief equity strategist at Thndr Securities Brokerage, said that though the market is seeing a flurry of profit-taking, other factors had contributed to the decline, including technical malfunctions at the Misr Clearing Company for Central Depository and Registry which clears stock market transactions, and the announcement of the implementation of capital gains tax.

The cabinet has decreed that the collection of tax for the March 2024 tax season on capital gains realised from the sale of securities listed on the EGX, as well as securities of Egyptian companies not listed on the exchange, begin in March 2025. Capital gains tax was first introduced in July 2014 at a rate of 10 per cent. In 2015, following protests from financial market investors, the tax was suspended for two years. Its re-imposition was then further postponed due to prevailing economic conditions.

Abul-Saad believes fluctuations in EGX indicators are likely to persist until a partial or full cabinet reshuffle takes place and the new government’s priorities are announced.

Hani Geneina, an economic analyst and professor emeritus at the American University in Cairo, said that the availability of alternative investment vehicles such as certificates of deposits offering up to 30 per cent and risk-free treasury bonds yielding over 22 per cent, had helped fuel the EGX decline. When parallel exchange market rates declined many investors also realised that profits from companies, particularly those with dollar revenues, would not be as high as they had anticipated and started shedding their holdings.

Geopolitical challenges in the region, including the war in Gaza, further prompted investors to exit the market, as has the gold buying spree, led by the Chinese Central Bank, which has pushed gold prices from $1,900 to $2,400 an ounce.

Geneina notes that the EGX30, now standing between 24,000 and 25,000 points, presents an attractive opportunity for purchasing stocks with low price/earning ratios. He expects that the release of second-quarter earnings results will see banks and food industry companies reporting significant profit increases.

Mohamed Hassan, managing director of Alpha Financial Investments Management, said the upcoming period may see rating agencies upgrade their outlook on the Egyptian economy. He expects such moves, combined with exchange rate stability, to help attract foreign investors back to the stock exchange.

* A version of this article appears in print in the 9 May, 2024 edition of Al-Ahram Weekly

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