22 - 28 March 2001
Issue No.526
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Al-Ahram Weekly On-line 22 - 28 March 2001 Issue No.526 |
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Blood for the bourse
Egypt's financial community saw the inauguration this week of the renovated Cairo and Alexandria Stock Exchanges. The century-old bourse has become a hi-tech, state-of-the-art institution ready to interact with world markets. The changes implemented in its trading floor are an achievement in both administration and vision, especially given the reversals the bourse has witnessed since its initial comeback in the mid-1990s. The lack of vitality that has dogged Egypt's stock exchange of late is reflected in the level of its daily transactions, which combined amount to barely a fraction of an hour's trading in the markets of New York, London or Tokyo.
The current plunge in world markets will compound the existing slump in the Egyptian stock exchange, but poses an even greater liability in the longer term. The bourse, however, has other immediate problems that need to be addressed if its strengthening as an institution is not to be aborted.
The bourse's administration is well aware of this fact, as indicated by head of the Cairo and Alexandria Stock Exchanges Sameh El-Turguman. His statements suggest that the stock exchange cannot operate as an island if it is not supported by a more dynamic environment. The overall pattern of trading is still characterised by sharp rises and falls driven by the magnetic effect of dominant stocks -- those in the telecom, media and cement sectors. The poor overall level of portfolio investments has pushed the value of other stocks in the bourse down even further in an economic environment where production, manufacturing and exports have lagged in the absence of sufficient incentives.
The public's faith in the bourse has been dogged by the perennial problems of insider trading and poor corporate governance. A new capital market law is in the works, purporting to extend greater jurisdiction to the bourse's authorities in countering violations. But a capital market law already exists and, while some of its aspects require fine tuning, it could have been modified without a total overhaul -- a clear sign that new legislation alone cannot bring about reform.
Stalling has also obstructed the implementation of the new listing rules for companies, which El-Turguman had announced were ready last year. Hopefully, lack of synchronisation between legal and bureaucratic bodies will not be a further impediment to the bourse's take-off.
The private sector at large, furthermore, exhibits a marked absence of the necessary shareholder culture. The owner of a leading car paint factory, despite his "desperate need" to increase capitalisation, as he described it in a meeting with journalists, is averse to doing so through the stock exchange since, he said, this would bring him under government scrutiny and he prefers to keep his business in the family. Such misperceptions, which discourage investment in the capital market, need to be addressed.
The market is also awaiting the issuance of the mortgage law: securitisation measures being taken here should vitalise transactions. But the careful scrutiny being paid to the law's current seventh draft should not postpone its presentation to parliament yet again.
The strategic privatisations announced by Prime Minister Atef Ebeid in telecom and electricity stocks, too, must follow a more constant course. Matters must be studied carefully before decision-makers announce when telecom will be privatised, and whether this will be done through anchor investors or IPO. This is imperative to avoid investor confusion over which stocks to buy -- confusion that will only compound the market's slump, as witnessed previously. A sustainable, transparent exchange rate policy upon which investors can count is also crucial. Economic policy-makers need to explain why they now seem to be fixing the exchange rate by restricting its margin of fluctuations after having signalled that they were engineering a managed flotation of the pound. The persistence of a black market in exchange transactions will negatively affect investor thinking about the stock exchange. If these matters are not dealt with soon, the bourse's commendable achievement will amount to no more than an exercise in mastering logistics.
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