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Al-Ahram Weekly 4 - 10 May 2000 Issue No. 480 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 4 - 10 May 2000 Issue No. 480
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Special Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Market poised for recovery
By Sherine Abdel-Razek
A few hours after the government announced a host of economic measures aimed at boosting liquidity and solving the country's internal debt problems, the Egyptian capital market showed signs of recovery for the first time in weeks. The market has suffered consecutive declines sparked by the weak performance of its main players, fluctuating inter-bank rates, together with the aftermath of Black Friday. The measures include supplying the market with new privatisation offers -- with the long-awaited-for Egypt Telecom topping the list -- and regulating inter-bank credit through a new unified inter-bank rate. Cairo Inter-bank Offered Rate (CIBOR), which mimicks the London Inter-bank Offered Rate (LIBOR),has been introduced and LE25 billion worth of debts to both private and public enterprises has been settled, a move that will inject needed liquidity into the market.
The capital market reversed its two-month slide, realising gains at the end of last week's trading and earlier this week. The market's active share prices rose to the five per cent ceiling on the daily gain for individual market shares. The International Finance Corporation index for the Egyptian market also registered a 4.6 per cent increase last week.
The two main market players, MobiNil and the Egyptian Media Production City Company (MPCC), also gained momentum after reaching their lowest levels in mid-April amidst a selling frenzy which reached its peak earlier last week, pushing the CMA down by 25 per cent in just one day.
However, this revival as well as investor's confidence will not be secured unless the government's announced measures are quickly implemented. "To believe in this rally we need to see action, not just promises," said Khaled El-Mahdy, head of research at HSBC.
Plans to introduce CIBOR were initially suggested a year ago but nothing materialised. Last year also witnessed announcements that a number of heavyweight state-owned enterprises, including electricity and telecommunications companies, would be divested, but no step was taken in this direction.
The market's internal shortcomings shoulder a big chunk of the responsibility for its problems. Lack of transparency seems to be the main cause of almost all of the market's woes, especially concerning the market's most popular, highly liquid and highly capitalised stocks -- those of MobiNil and MPCC.
Analysts' downgrading their valuation of MobiNil shares, followed by its worse-than-expected first quarter results, were not the only reasons that sparked the company's share-selling frenzy. MobiNil shares plunged to reach their lowest level ever this year at LE113 per share in mid-April. Insider trading arising from the leakage of MobiNil's financial results before their official announcement gave a few investors the opportunity to liquidate their stocks while the company's shares were still high-priced. Other investors panicked when they witnessed this selling wave with the situation deteriorating as the company announced its results.
El-Mahdy sees that those individual investors who currently corner more than 60 per cent of market transactions, might constitute one of the main causes of market instability. These short-term investors buy heavily into any stock they believe to be on the rise, to sell it again as soon as it shows signs of faltering. He also believes that, due to a lack of information, experts cannot make accurate predictions of companies' results and performance.
"As in all emerging markets, we have a lot of grey economies," El-Mahdy said.
This lack of transparency could not be more relevant than in the case of MPCC. The company's shares, which have become the second most popular on the Egyptian stock exchange, have been unjustifiably on the rise since the MPCC's listing last November. This reasons for this remain enigmatic to market observers, since the company has so far been unwilling to submit both its historical data and future plans. As a result, a number of investment banks issued reports with reserved opinions, with some even declining to comment, on the company.
"The company's financial results for 1999 and its revenues coming from interest income is all we have. How it is going to use these revenues or what its plans for the future are is unclear," explained El-Mahdy.
Said El-Mahdy, "This vagueness might be why investors have fled the equity market."
Fed up with the lack of clarity governing stock transactions, a number of investors, protesting in front of the Egyptian Stock Exchange headquarters last week, demanded that the capital market's management review companies' sometimes misleading financial statements.
The government's hasty decision to issue LE3 billion worth of treasury bonds may also to be blamed for the latest setback, as many portfolio investors are fleeing equity investments for the less-risky and higher-yield bonds.
The meagre number of big caps traded on the market also makes it more vulnerable to any problems which might beset these few and highly capitalised movers, as was the case with MobiNil.
However, El-Mahdy pointed out that this is normal at this stage of market development, saying that this shortcoming would be overcome once the market witnesses major merger deals.
