Al-Ahram Weekly On-line 30 Nov. - 6 Dec. 2000 Issue No.510

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Downward 'correction'

By Sherine Abdel-Razek

"It is not the end of the market's recent revival, it is just a slight correction." This was the spin that most market observers put on last week's plunge in the market.

Almost all the active big cap companies closed the week with lower prices than those at the week's opening. Selling transactions outnumbered purchases as investors whose stock posted gains in recent weeks sold off shares to make capital gains.

The regional political unrest, which has cast a shadow over the market during the last two months, continued to have a negative impact. This was heightened last week by Egypt's recalling of its ambassador to Israel, which triggered a selling panic. Nonetheless, many of the shares that took a dive during the panic had rallied by the end of the week.

The capital market all share index dropped by 2.7 per cent, coming to rest at 624.34. Overall turnover was valued at LE652.2 million. Accounting for 60.5 per cent of this movement were five companies. Of this group four are tried and true performers, namely, MobiNil, Orascom Telecom (OT), Media Production City and Commercial International Bank (CIB). The upstart in the pack was the stock for the Lakah Group.

Comprising one quarter of all market transactions, MobiNil's stock was the busiest stock. However, its shares were affected by the overall corrective movement and lost about 13 per cent of their value to close the week at LE82. This decline need not be considered worrisome as the shares increased considerably in the last month, having hit a low of LE58 in mid October.

MobiNil subscribers are anticipating the company's intensive Ramadan media blitz which this year follows on the heels of an intensive advertising campaign launched by its sole competitor, Misrfone, which operates Egypt's other mobile network, Click. The latter announced last week its customers topped the one million mark. Although MobiNil began offering its services 18 months before Click, MobiNil only beat Click to the million mark a few months ago.

Another busy, albeit losing, stock was that of OT, which had recently announced that it won a licence to operate a GSM network in Niger. Such positive news failed to stem the downward trajectory of this stock which lost 9 per cent of its value during the trading week to end at LE61.39.

Market observers believe that the decline in both MobiNil and OT was triggered by the negative sentiment pervading the global information technology (IT) market which is reflected in the continuing decline in the American NASDAQ index. The recent decision that Egypt will not offer a stake in its fixed-line monopoly Telecom Egypt within the coming period has, however, maintained the company's position of being the only IT stock traded in Egypt.

In announcing the delay of the sale of Telecom Egypt, Minister of Telecommunications Ahmed Nazif cited the current low prices for the shares of cellular phone operators on international bourses and regional political unrest.

In an announcement this week, Media Production City reminded market observers why it accounts for such a large portion of the market's transactions. The company announced that it finalised agreements with four international marketing companies to promote its films and TV serials in the British and American markets. In spite of such good news, the company's share failed to escape the general market decline, shedding 8 per cent of its value, ending the week at LE21.33.

In terms of number of shares traded, those of the Lakah Group headed the pack. Lakah's momentum can be accounted for by its announcement to its general assembly of shareholders last week that it had reached an agreement to settle its debts. The group was also helped by rumours that an announcement of a new venture with an American financial leasing company is imminent.

Among companies that fared less well were the Arab International Construction company (AIC). This private company announced a 91 per cent decline in its net profits during the second half of the year compared to those realised during the first six months. As such financial results had been anticipated, the company issued a profit warning during the second quarter notifying its investors that its results would be less impressive during the latter part of the year. This measure failed to stem the decline in the value of its shares, which closed at LE4.35. Once among the most attractive stocks, AIC has suffered throughout the year from mounting debts to the state.

In spite of all the gloom, the market was not bereft of good news. On a positive note, foreigners were net buyers, with their buying transactions accounting for 34 per cent of overall transactions. This is considered a positive sign and is believed to be a result of the improvement in the overall macro and micro-economic outlooks.

Egypt's domestic economic fundamentals seem to be improving, with corporate earnings performances in the third quarter of 2000 showing a general improvement compared to the results of the first half of the year. A key positive indicator regarding the general economic situation is the decline in the trade deficit announced by the Central Bank of Egypt (CBE). During the first quarter of fiscal year 2000-2001, the trade deficit shrunk by US$627 million from its level of US$2.7 billion in the same period last year. The CBE also announced that institutional investments in Egyptian stock amounted to US$286 million in the first three months of 2000-2001, representing a US$153 million increase compared to their level during the corresponding period last year.

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