Bumpy short-term ride for Egypt's troubled stock market

Ahram Online , Tuesday 22 Mar 2011

Telecommunications, pharmaceuticals and food and beverage are better placed to weather strong selling pressure

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Heading for a fall? The Egyptian stock exchange back in January (Photo: Reuters)

Financial pundits are predicting a temporary dip for Egypt's stock market when it finally reopens on Wednesday after seven weeks out of action.

Strong selling pressure are likely to prevail despite measures to limit capital flight.

The bourse closed down 10 per cent on 27 January, after 70 billion Egyptian pounds (US$11.9 billion) was wiped off shares in 48 hours. A raft of measures have been put in place by the Egyptian Financial Services Authority (EFSA) to guard against panic sales and large fluctuation in stock prices. But, while few think investors will stampede for the exit, many commentators expect a definite opening fall.

"It should have opened a long time ago, peoples' money has been tied up," says Walaa Hazem, vice president for asset management at HC Securities & Investment, who has been opposed to the stock market's closure since the start.

Hazem thinks the seven-week freeze is certain to make for an opening dip.

"The market will decline in the first few sessions because of strong selling pressure, which is natural after money has been locked up," he says. "It probably won't take long to stabilise and then the economy will progress in line with political and social security."

Hazem praises the "good controlling measures" put in place by the EFSA to limit capital flight and temper daily fluctuations in stock prices, believing it a "good way to even up supply and demand".

Daily share price movement is being limited to 10 per cent and trading sessions are being reduced to three hours. The cash reserve requirement for brokerages has also been halved to five per cent of capital.

Hazem also reiterates his belief that sectors with strong fundamentals will best weather the storm, citing the telecommunications, pharmaceuticals and food and beverage industries.

As 2010 profit reports for Egyptian companies emerge in the coming weeks they will also have an impact on investment decisions, although investors are more likely to concern themselves with future prospects than past glories.

Hazem concedes that first quarter results for 2011 "will not be great" - a prediction borne out by recent admissions from several large Egyptian firms that they have already reduced profit expectations.

Egypt's El-Sewedy Electrics, a major player across Africa, has downgraded expectations for first-quarter profit growth from 20 per cent down to just one per cent. El-Sewedy's involvement in Libya represents 10 per cent of the firm's total sales, but it also predicts a decline in Egyptian trade by as much as 25 per cent.

Raya Holding, an IT company also listed on the stock market, expects first-quarter losses of LE4 million.

"People are going forward rather than back. What happened in 2010 is important but what is more important is 2011 and how companies perform now," says Hazem.

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