Egypt stocks continue to tumble as FX crisis, businessman arrest spooks investors

Ahram Online , Monday 9 Nov 2015

Mounting pressure on pound in aftermath of Sinai Metrojet crash, new savings certificates, signs of looming devaluation and Egyptian tycoon's arrest behind sell-off, says broker

Egyptian stock market
An interior view of the Egyptian stock market is seen in Cairo (Photo: Reuters)

Egypt stocks continued to tumble on Monday as foreign exchange and business climate concerns prompted a sell-off by foreign investors and both local and foreign institutions.

The main EGX30 index was down 2.84 percent after falling close to 2.6 percent on Sunday, closing at 7,138 points.

Market bellwether and Egypt’s largest private sector lender Commercial International Bank (CIB) saw its share price plunge 4.63 percent to trade at LE49.80.

Mounting pressure on the Egyptian Pound and signs of a further devaluation or outright flotation of the currency are the main concerns behind the fall of the market.

On Sunday, Egypt's largest two state-owned banks launched savings certificates for Egyptian pounds at an interest rate of 12.5 percent, above the average 10 percent currently offered by banks.

"It's an announcement by the Central Bank (which is driving the public sector banks) that, yes, we have a crisis," Osama Mourad, Chairman of Egyptian brokerage firm Acumen Securities, told Ahram Online in a phone interview.

The move comes as the tourism sector, one of Egypt's most important sources of foreign currency, has been dealt a blow by the crash of Russian commercial flight from the popular resort of Sharm El-Sheikh last week, which has prompted European governments to halt flights to the resort and issue travel warnings.

"Mounting evidence that the Russian plane crash in Egypt’s Sinai Peninsula was caused by a bomb planted by an affiliate of Islamic State is almost inevitably going to deal a hammer blow to Egypt’s tourism sector," said Jason Tuvey, Middle East Economist at Capital Economics in an emailed note on Monday.

"The resulting loss in foreign currency revenues will place the country’s external position under added pressure and means that a further devaluation of the pound is looking increasingly likely," he said.

The arrest of prominent Egyptian businessmen Salah Diab and his son businessman Tawfik Diab on charges of possessing unlicensed weapons days after the prosecution announced a corruption probe against them also spooked investors, says Mourad.

“Definitely the arrest of a famous business men created a lot of negative sentiment in the market.”

Egypt’s bourse also announced on Monday that it had frozen the listed assets owned by the Diabs, along with real estate tycoon Mahmoud El-Gammal and 15 others, on orders from the prosecutor general.

The prosecution announced last week that it was investigating the businessmen for buying state agricultural land at an unfair price and violating the terms of the contract by building on the land, based on complaints submitted to the prosecution back in 2011.

Real estate blue chips saw some of the steepest falls, with Palm Hills Development Company sliding 4.15 percent to LE2.08 a share, while Six October Development and Investment (SODIC) fell 1.98 percent to LE8.40, and TMG Holding was down 1.22 percent to LE6.46 a share. Heliopolis Housing tumbled 4.22 percent to LE40.15 a share.

Non-Arab foreign investors, who accounted for 29 percent of trading, were net-sellers for LE132.9 million, bourse data showed, and both Egyptian and non-Arab institutions were both net-sellers to the tune of LE30.6 million and LE133.2 million, respectively.

“Retail is trying to do some bargain shopping,” while foreigners and institutions, both foreign and local, are on the sell-side, with a bearish sentiment on the market.

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