EGX fell due to domestic challenges, coronavirus outbreak: Experts

Doaa A.Moneim , Thursday 5 Mar 2020

The EGX started the week in red due to Egyptian and Arab selling, recording losses amounting to $31.98 billion of market capitalisation

Traders work at the Egyptian Stock Exchange in Cairo (Photo: Reuters)

Since the beginning of 2020, the performance of the Egyptian Stock Exchange (EGX) has witnessed ups and downs, especially in the two key indices EGX100 and EGX30, which forced the EGX to suspend the trading session for half an hour on 1 March.

Because of the COVID-19 (coronavirus) spread, the EGX started the week in red due to Egyptian and Arab selling, recording losses amounting to $31.98 billion of market capitalisation, with a drop exceeding six percent for both EGX 30 and EGX 100 indices.

Yet the EGX started to recover on 2 March and has managed to somehow make up for its losses.

In fact, the EGX performance deteriorated in February, recording five percent in losses in its market capitalisation, losing $29 billion.

Illustrating the EGX performance since the beginning of 2020, financial markets expert and head of the financial markets committee at the African Economic Council Ayman Foda told Ahram Online that the EGX in January kept its performance it had achieved by the end of 2019, standing at 13,200 points, but it started to deteriorate as of February.

The total foreign indirect investment that was headed to the EGX in 2017 recorded EGP 340 billion, but it started to decline in 2018, registering EGP 295 billion, and shrank to EGP 224 billion in 2019. It is expected to decline further in 2020, according to Foda.

He attributed such deterioration to a number of domestic and global factors, including the absence of a vision in managing the Egyptian financial market, especially that it is one of the most pivotal economic sectors that provides liquidity and finance and attracts investments.

"EGX is the main gate for investors wanting to pump new investments for into the macroeconomy. But this can happen when the EGX is healthy. So the current situation weakens the investor's confidence to invest in the EGX," Foda explained.

He added that imposing a stamp tax on gains and losses achieved by traders has raised the trading costs, which eventually caused a decline in the number of trades, and consequently the financial market has become more fragile and sensitive to negative factors.

Foda said there are acquisitions, mergers, companies' compulsory and optional write-off cases, which are necessary for the market to be energised, but that these have not been settled yet, which severely affects the equities' performance.

He cited the deal of selling 45 percent of Vodafone shares that has not been decided. It is yet unknown whether Egypt Telecom will buy the shares or not. He added the current situation has weakened the telecommunication sector in the EGX, which is one of the top five vibrant trading sections in the EGX.

Foda highlighted the global threats that affect not only the EGX, but all the financial markets around the world.

"Since January, COVID-19 has spread all over the world, leaving an impact on the performance of the EGX. The virus is not the main reason, however, since the absence of a vision for the EGX management has led Egypt to perform worse than the countries that are witnessing a serious situation with the virus," he added.

According to Foda, EGX's total losses since the beginning of the week hit EGP 60 million.

Total trades were estimated at around EGP 3 billion per day in 2008. Nonetheless, since the floatation of the Egyptian pound, trades hit only EGP 500 million per day, Foda said, clarifying how the EGX has deteriorated.

Meanwhile, financial markets expert Mohamed Deshnawy told Ahram Online that the EGX performance has been weak since the beginning of 2020, despite that country's advanced macroeconomic indices.

He attributed the weak performance to the US dollar fall against the Egyptian pound that reduced the chances for the companies that are listed for export purposes.

Deshnawy illustrated that construction and building materials companies have the lion's share in the EGX trades, while these companies have suffered since 2019 the declining demand on real estate units, which affects their performance in the EGX.

He added that the government, especially the Ministry of Public Enterprise, has failed to settle the status of the Iron and Steel Company (IRON) and Heliopolis Company for Housing and Development, which decreased the investor's confidence in this kind of deals.

He said that imposing taxes on traders and trades is harming the sessions' performance, as it forces the trader to bear financial burdens at a time the market is suffering bad economic conditions across multiple levels.

Concerning coronavirus and its impact on the EGX performance, Deshnawy said it definitely harms all financial markets across the world, but such crises are a golden opportunity for the economy.

"Egypt has to make use of this situation to intensify the domestic products to replace the imported ones. This will energise the market, create new jobs, and consequently attract new investments to the EGX", according to Deshnawy.

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