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Al-Ahram Weekly 4 - 10 March 1999 Issue No. 419 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 4 - 10 March 1999 Issue No. 419
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Travel Sports People Time Out Chronicles Cartoons Letters Bridging the gap
By Sherine Abdel-Razek
If time is a criterion, then the Egyptian and British stock markets should stand on an equal footing. But compared with its British counterpart, the Egyptian stock market's growth and expansion has been delayed due to political developments, mainly the nationalisations of the 1960s.
Today, the Egyptian Stock Exchange (ESE) has retreated to emerging market status, while the London Stock Exchange (LSE) has risen to the top of the international financial market. Last year, total turnover of the LSE amounted to $3.6 trillion compared to only $6.6 billion (LE23.3 billion) worth of transactions in the ESE.
However, this relatively weak performance is still commendable, given that it was only within the last decade, with the introduction of the economic reform programme and privatisation, that the ESE started to revive. But even this revival was interrupted by periods of setback, the latest of which lasted for two years and was the outcome of a combination of factors, foremost of which was the flight of foreign investments following the Luxor massacre in November 1997, and the Southeast Asian financial crisis which destroyed confidence in investments in emerging markets.
"In light of the difficulties that all markets, even that of England, faced last year, I was impressed with the performance of the Cairo Stock Exchange," said Sir John Kemp-Welch, chairman of the LSE, who was in Cairo this week on a three-day visit. "If you look at how shares have moved here, in comparison with other markets worldwide, it becomes evident that ESE has recovered its poise," he said.
Kemp-Welch pointed out that despite difficulties in predicting ESE's future performance and potentials, he still believes that Egypt's promising economic indicators will attract more foreign investors in the future.
During his visit, Kemp-Welch finalised an agreement with the Egyptian Minister of Economy Youssef Boutros Ghali aimed at upgrading the ESE's personnel skills through training courses at the LSE. Kemp-Welch pointed out that this was not the first bilateral agreement between the two exchanges, referring to a memorandum of understanding signed last summer.
Egyptian companies' international debut came in 1996 when the Commercial International Bank (CIB) listed its shares on the LSE in the form of Global Depository Receipts (GDRs). Over the last three years, five other Egyptian companies have opted to trade their shares in the form of GDRs on the LSE. Those companies are Misr International Bank, Suez Cement, Paints and Chemicals Industries, Ameriya Cement and Al-Ahram Beverages, which recently issued euro-denominated GDRs through the exchange. The turnover of Egyptian GDRs in London last year amounted to $1.7 billion.
Kemp's assessment of the ESE was supported by Caroline Goodman, a senior manager at the LSE. "This rapid rise is really substantial and is an outcome of the fact that Egyptian companies have been very dynamic in promoting themselves internationally. Your stock market and your government have done a very good job in promoting themselves as well," she said.
A study conducted by the ESE shows that British investors at the moment have the lion's share of total foreign transactions in the Egyptian market. According to Kemp-Welch, this stems from the fact that London is the biggest international share market in the world. "More international equity business comes through London than through any other market in the world. British [consultant] firms are experts at assessing world markets and many of them follow [the performance of] Egyptian companies and have been a good support to them," he said.
Kemp-Welch's visit to Egypt included meetings with senior management of some of the six companies listed on the LSE. "We are keen to encourage Egyptian companies to list their shares on the LSE, thereby raising their capital through the international market," he said.
Promising fruitful future cooperation between the two exchanges, Kemp-Welch said "the LSE can provide the framework of a friendly market, after which it would be up to Egyptian companies and their advisers in London to decide when it would be right to come up and invest in the market."
Kemp-Welch also commented cautiously on some aspects of the Egyptian market, such as the state's controlling role and Egypt's weak bond market. "The tradition is not to have restrictions on market movements, but as part of our [endeavour] to run a fair market, we freeze the transactions on individual securities if we find exaggerated movements in their value during dealings," he said.
The Egyptian Capital Market Authority currently imposes a five per cent limit, upwards and downwards, on the daily movements of the traded share prices.
Although local demand for the expansion of the Egyptian bond market is increasing, bond transactions accounted for only 20 per cent of the market's overall turnover in 1998. Kemp-Welch did not consider this to be a critical problem. "It is not the volume of the bonds market that matters. The main criterion is how much money the state needs to borrow through government bonds, or what portion of corporate needs should be raised through corporate bonds," he said.
"Our domestic companies have made good use of bonds in some periods more than in others, depending on the level of interest rates and the availability of other sources of finance," he said.
Kemp-Welch predicted that the need for bond issues, whether government or corporate, will decrease in the short term since the strong balance sheet performance of British companies over the past three years have enabled them to become less dependent on bonds.
He pointed that there is a factor which must be borne in mind when evaluating the volume of the bond market, which is the relatively small volume of the Egyptian economy as a whole. According to him, this same factor also explains the relative low capitalisation of Egyptian traded companies. Kemp-Welch said that during the 1980s, when the British economy was not as developed as today, there were less highly-capitalised companies listed.
