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Market Report: Egypt stocks shrug off credit downgrade to rise 1.2 per cent

Investors focus on political stability over Standard & Poor's latest credit downgrade, as healthy across the board trade helps the Bourse claw back recent losses

Michael Gunn, Ahmed Feteha, Wednesday 19 Oct 2011
Egypt
Staff at Egypt's stock exchange (Photo: AP)
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Egypt’s major stocks bounced back into the green on Wednesday as institutions took heart from preparations for parliamentary elections and seemed to shrug off Standard and Poor’s downgrade of the country’s credit rating.

The benchmark EGX30 closed the session up 1.17 per cent at 4,264 points, completely reversing the previous day’s muted losses. Lower-cap stocks did better yet, driving the EGX70 index up a further 2.74 per cent.

“Investors have gained confidence in Egypt as the election process is going smoothly,” said Issa Fathy, vice president of the securities division at Cairo's Chamber of Commerce.

On Tuesday, Standard & Poor's cut Egypt's credit ratings deeper into junk territory with a negative outlook, saying the transition to a new government and the prospect of high budget deficits were threatening economic stability.

But the stock market did not react, and traders said this showed much bad news had already been priced in to stocks.

“Investors did not put much weight to the negative consequences or take it as a devastating sign because Egypt is just part of the struggling international economic system,” Fathy said.

“No country is immune to credit downgrades, even the US, so investors did not panic when this happened to Egypt.”

From the 184 stocks traded on Wednesday, 150 gained in value and 23 declined, with food and beverages the only sector to take an overall loss. Institutions dominated proceedings, making up 61.4 cent of total trade.

It was the latest session in a weeklong rebound from a multi-year low of 3,280 points in early October with the market achieving what some called a medium-term floor.

Turnover for the session was LE308.8 million, a significant improvement on just two weeks ago, but still too thin to fuel a full revival, said commentators.

The real estate sector powered many of the gains, finishing up an overall 2.51 per cent on the back of the performance of major shares such as the Talaat Moustafa Group and Palm Hills Development, up 2.73 and 3.17 per cent respectively.

“Trust in real estate companies is being re-established with the expectations that cases filed against the companies will be scrapped,” explained Fathy, referring to long-running legal disputes over land bought from Mubarak’s regime under controversial circumstances.

“That means stocks are recovering as they were highly undervalued.”

Telecom Egypt grew by 1.15 per cent to close at LE14.99 per share, despite ongoing protests by directory and maintenance staff demanding the replacement of the landline monopoly’s head.

“It seems that the market is not taking the TE strike seriously,” said Fathy. “Or maybe we can just say that investors have built up a tolerance against this kind of incidents, that it doesn’t affect their decisions as much as it used to.”

Foreign investors were behind a third of the day’s trade and were the sole overall buyers, snapping up a net LE9.148m of stocks. Egyptians traded twice as much, but were marginal net-sellers of LE3.64m.

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