20 - 26 August 1998
Issue No.391
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Al-Ahram Weekly On-line 20 - 26 August 1998 Issue No.391 |
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| Published in Cairo by AL-AHRAM established in 1875 | Current issue | Previous issue | Site map | ||
Transparency in tradingGloom hovered over the capital market in the first half of 1998 as demand flagged, shares were overpriced and one hasty decision after another was issued by the government. Adding to the market's woes were the spill over effects of the crisis in the financial markets of southeast Asia and the aftermath of the Luxor tourist massacre last November, which caused investors' confidence in the stock market to plummet. Some companies suffered a drastic decline in their share value of anywhere between 30 and 70 per cent. Some shares plunged even lower than their issuing price. With certain companies suffering a decline despite posting a 50 per cent increase in profits, the government has finally intervened with a host of regulations which include the issuing of an explanatory statement for the tax law amendments adopted earlier this year. It came as a relief to the market that the amendments will not detract from revenues of the banking sector, which is one of the market's leading sectors. The statement is expected to push up both the demand for banks' shares, their second-half (annual) results and, consequently, their dividends. The cement sector was also relieved by the government's announcement that it will refrain from relocating cement factories as long as they followed environment-friendly procedures in the future. This, in turn, lightened the gloom which had obscured the cement sector's transactions. Holding companies were also given the green light to buy back shares in their subsidiaries if their value records a 20-40 per cent decrease with relation to their subscription value. All of these procedures were designed to swallow the excess share supply and increase the volume of demand. It is expected that demand will be further enhanced by a new regulation prohibiting financial institutions from purchasing investment certificates. The extra money is to be channelled into the stock exchange. In a move aimed at providing the market with attractive goods, newly established companies were given the go-ahead to trade their shares in the exchange before the publication of any financial statements. Until now, new companies had to wait for a whole year before being traded. Investors in these new companies will be protected by a number of measures such as the obligation on companies to provide full accounting transparency so that investors can evaluate the companies' financial status before buying any of their shares. The bonds market has also had its share of attention: the Ministry of Finance is trying to activate this sector by offering consecutive treasury bond issues with different maturities. The expected increase in share supply resulting from the flotation of the electricity sector, public works and telecommunications is expected to have a positive effect on the market. Availability and validity of information is another factor which should push the market forward. A new data-providing company was licensed recently with paid-in capital of LE5 million. The new company will collect information on companies traded in the market and publish the data on a periodical basis, with the commitment to provide investors with all the information they need. The company's capital will be provided by companies working in the market, along with a number of individual investors. The availability of transparent and reliable data should dispel the crippling doubts that have afflicted the market, triggering the continuous plunge in the share values of many companies. Another cure for the market's ills is the smart portfolio formed by the four public banks in conjunction with the four public insurance companies and other investors. The portfolio will invest in certain shares, in an added attempt to revive the demand side of the market. |