Investors likely to trade carefully as Egyptian stock market reopens

Michael Gunn, Monday 28 Feb 2011

EFSA measures in place to guard against panic trades

stock exchange
Egyptian soldiers guards Egypt's Stock Exchange Market, which has been closed for over a month, in Cairo, Egypt Monday 28 February 2011. (AP)

Egypt's bourse, closed for a month due to political upheaval, will resume trading on Tuesday as unrest rumbles across the region causing Middle Eastern stocks to tumble.

Many are nervous as to what tomorrow's three-hour trade session will bring, with the Egyptian Financial Supervisory Authority (EFSA) announcing a raft of restrictions to guard against capital flight and panic trading.

On 19 February, the EFSA said it would limit daily share price movement to 10 per cent, reduce the trading sessions to three hours from four and lower the cash reserve requirement for brokerages to five per cent of capital from 10 per cent. The agency's chairman, Ziad Bahaa El-Din, resigned on Sunday and was replaced by his first deputy, Ashraf El-Sharkawy.

"The opening is a must - people have to move on," says Walaa Hazem, vice president for asset management at HC Securities & Investment in Cairo. "They might face selling pressure in the beginning as peoples' money has been held for a while, but eventually things will start to stabilise and people will make stock picks based on the usual fundamentals."

He believes the food and beverages, oil/petrochemicals and communications sectors are in the "best positions" whereas real estate will be most vulnerable, given the attendant political and insurance risks.

Investors that Ahram Online talked to were also planning caution.

"We're watching closely what will happen with the elections and the current circumstances before we jump back in and invest a lot of money," says Hamdi Ahmed, an investor with 100,000 shares in Arab Real Estate Investment, who claims 40 per cent losses during the trading of the first three days of the uprising. The Egyptian stock market's benchmark index fell 6.1 per cent on 26 January, the day after protests against Mubarak first flared, and fell another 10.5 per cent on 27 January, before closing for a month.

"I'll wait and see for the first 15 or 20 minutes," says another investor, who prefers to remain unnamed. "There will be a slide, I am sure. But my decision when to buy will depend on how deep the slope will be. If it will be a slight one I'll prefer to wait. The ones who will load off their shares are those desperate for liquidity or panicked inexperienced traders."

Long-term stock market stability will, Hazem notes, likely be tied to the progress of Egypt's Supreme Military Council in enacting promised democratic change. "We will see it as we move day by day. Encouraging political reforms will be reflected in the market," he says.

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