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Al-Ahram Weekly 3 - 9 August 2000 Issue No. 493 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 3 - 9 August 2000 Issue No. 493
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Year of the bear
By Sherine Abdel-RazekThose who enjoyed the active market during the first month of the year are shaking their heads and wondering what happened. After January, the market has given no one any cause for joy.
The capital market index reached 695 points in January, but it has since tumbled downward. It now stands at 599 points. This disappointing performance occurred despite the fact that the average monthly transactions for the past seven months was LE3.5 billion -- compared to LE1.5 billion for the corresponding period in 1999. However, analysts point out that while the overall volume of transactions approached record highs, most of the turnover came from selling activity. Moreover market capitalisation, which sky rocketed to LE138 billion in January (46 per cent of GDP), started sliding in April. It settled at LE119.7 billion in June.
There are a list of factors, the most significant of which is the domestic liquidity crunch. The currency squeeze has stripped the finances of listed companies of revenues due to a need to increase provisions and inventory. Thus the market is now less attractive to investors. Many investors have started to liquidate assets.
Government efforts to lighten the gloomy atmosphere have generally been lack lustre. It has pledged to inject liquidity into the market by repaying debts to both the public and private sectors, but the effect has yet to be seen. Analysts attribute the lack of performance to the fact that the government is not actually paying the companies directly. It is settling bank debts.
Compounding difficulties is shaken investor confidence. Government promises have been shown to be less than iron clad. Moves to implement a proposed privatisation in the cement sector have proceeded at a snail's pace and the long awaited mortgage law has yet to be passed. Consequently, the announcement of the elimination of the 42 per cent capital gains tax on securities investments had only a limited effect on the market.
Another factor has been the foreign markets. Despite official reassurances that the Egyptian market was immune to the April new economy shares crisis in the New York Stock Exchange, investors remain very nervous. By the end of April, fear inspired investors to gather in front of the stock market building in a demonstration calling for intervention against sliding market value.
Another strong external factor was the Morgan Stanley announcement in March that the powerful American investment house is considering including Egypt in its emerging market index. The resulting investor enthusiasm, however, was short lived. The May edition of the Morgan Stanley quarterly review made no mention of Egypt. The omission has heightened ambient pessimism. The index would have secured Egypt greater weight in the portfolio of investors. The Morgan Stanley index is a benchmark for emerging market investments.
Another shock has been the decline in global depository receipts (GDR) prices following the increase in American interest rates. The decline in GDR prices of the nine Egyptian companies listed in the London Stock Exchange acted as a transmission belt whereby global fluctuations broke through the so-called immunity of the Egyptian market. Consequently, in May the Egyptian market was hit by a double blow.
Another disruptive factor has been Orascom Telecom (OT) shares. The company IPO (Initial Public Offering) last month was a hot commodity among both local and foreign investors. Having GSM licenses in more than 11 African countries and being the largest stake holder in MobiNil, investors were eager to jump on the OT bandwagon. The sale involved 23 per cent of OT equity in what is considered Egypt's largest ever IPO. In order to free up assets to invest in OT, positions in other companies, even MobiNil, were liquidated. This has resulted in a general decline in the market due to a concentration on selling activity. Despite its initial success, OT started to lose ground only two weeks after its inclusion in the market. After shooting up in its IPO debut to LE62.6, it ended last week at LE52.4.
Shares in Arab International Construction have also had a negative effect upon the market. Shares have been hit by lower than expected company performance and an insider trading scandal. The company is currently buying back the 1.56 million shares that changed hands during the three days of selling activity set off by a profit warning. The problems were set off back on 11 June when the stock exchange temporarily suspended trading on company stock. Officials suspected that its buoyant performance was due to insider manipulation. Thereafter, share prices halved to LE5.
Another stock in the spot light has been Media Production City (MPC). Prices experienced a spiral increase during the first three months of the year, despite the reservations of analysts. They were concerned by the vagueness of company data. The concern seems to have been well founded. Stock prices plummeted after the Radio and Television Union, the biggest MPC shareholder, decided in March not to increase its share in the firm (to subscribe in the company's capital increase). MPC stock has lost around 140 per cent of its value since March.
Finally, the fortunes of Commercial International Bank (CIB) have also had their ups and downs. It performed well throughout most of the year. Its 1999 net profits were 13 per cent higher than the previous year. This has allowed it to consolidate a 5.6 per cent increase in the first half of 2000. However, Standard & Poor last month downgraded its outlook for the bank from stable to negative. Bank stocks, however, have remained stable. Investors know that the move is a logical consequence of Standard & Poor's decision to lower its outlook regarding the Egyptian economy as a whole.
