Regional tensions after the Israeli attack on Gaza on 8 October have had no impact on the Egyptian Stock Exchange.

A week after the war broke out the exchange’s main index the EGX30 achieved a historic milestone surpassing 21,000 points, with market capitalisation gaining billions of pounds. The less active EGX70 and EGX100 indices also recorded gains.

The upward trajectory of Egyptian stock indices persisted until the end of the third week of October. By the close of trading on Sunday, the main index had reached an unprecedented height, breaching the 23,000-point threshold.

The gains are not directly related to the war, according to market experts.

Purchases of stock in Egypt are primarily driven by the anticipation of further increases in values even more than the usual bargain hunting when stock prices decline, typically seen as an opportune moment to buy, analyst Ibrahim Hosni said.

He said that despite the adverse effects of the events in the Gaza Strip, their influence on the stock market had been positive. The remarkable surge in the dollar, escalating by 12.5 per cent within just two weeks in the parallel market, and the surge in real estate and gold prices had rendered the quest for more-affordable stock market investments more appealing.

The exchange serves as an alternative to the dollar as a reservoir of value, alongside the advantage it offers in terms of convenience in buying, selling, and accommodating small to medium-scale investments, Hosni added.

These factors explain the record-breaking highs the EGX30 attained in the days following 8 October. The prevailing political and military tensions in the region triggered substantial concerns, compelling both individuals and institutions with available liquidity to seek a refuge for their wealth that can preserve its value and mitigate losses.

“Egyptian stocks will maintain their upward trajectory as long as the dollar keeps appreciating against the Egyptian pound,” Hosni stated.

Hani Abul-Fotouh, an economic analyst, said that any potential impact of the war on Gaza on the market was anticipated to be minimal, possibly confined to specific stocks belonging to companies directly engaged in activities in Gaza or in its immediate vicinity, such as companies specialising in religious tourism and organising pilgrimage trips to Jerusalem.

Another secondary factor ensuring the insulation of stock market activity from the surroundings is the level of awareness within the market itself. Apart from potential political and military tensions, the primary drivers for buying and selling on the Egyptian Exchange revolve around corporate profit expectations, in stark contrast to exchanges where companies’ activities are more rigorously evaluated.

Abul-Fotouh noted that the impact of war and political tensions were not exclusively negative. A case in point was the surge observed in Gulf exchanges, particularly in companies operating in the energy sector and coinciding with the rise in oil prices, he said.

Sherif Sami, a former head of the Egyptian Financial Supervisory Authority (EFSA), believes that the recent upswings in the Egyptian Exchange were not uniform across all stocks. The current state of the market is not a recovery since this typically aligns with times of economic prosperity and optimism, which is not the case at present, he said.

The most accurate characterisation of the market’s present state is “an escalation in trading values and price indices”, Sami noted.

This trend can be attributed to selective buying underpinned by expectations that specific stocks will exhibit resilience in both favourable and adverse conditions, such as stocks in the sectors of petrochemicals, fertilisers, and real-estate development companies that have substantial land portfolios.

Amid rising inflation and the anticipated depreciation of the pound, measures to hedge against the erosion of the pound’s purchasing power are coming into play. For example, there is a demand for fertiliser company stocks that generate revenue in US dollars through exports.

The reason for the demand is that any depreciation in the value of the pound promptly translates into an augmentation of the returns realised by these companies.

Real-estate companies possessing substantial land holdings are currently experiencing heightened demand. This is because as inflation rates rise, the value of these companies’ land portfolios also increases.

This connection is readily apparent not only to experts but also to the wider public, which leads to growth in the market within this sector. Purchasing shares on the exchange is an easier alternative to acquiring land directly, with the accompanying administrative intricacies, including ownership transfers and registrations.

Furthermore, the market’s convenience extends to ease of divestment, which can be accomplished the same day, with prices deemed appropriate by individuals and based on the regulations defined by the Egyptian Stock Exchange.

Sami said that these incentives apply equally to both individual investors and institutions. However, for foreign investors, the flexibility also exists to exit and explore investment opportunities in other exchanges should they desire to do so.

* A version of this article appears in print in the 2 November, 2023 edition of Al-Ahram Weekly