29 March - 4 April 2001
Issue No.527
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Al-Ahram Weekly On-line 29 March - 4 April 2001 Issue No.527 |
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Falling on hard times
Dented foreigner confidence, plummeting big-cap and blue-chip stocks and an inadequate Federal Reserve interest rate reduction have combined to prolong the Egyptian capital market slide. Sherine Abdel-Razek reports
The market continued its downward trend through the week ending 22 March on the heels of a US interest rate cut which many investors found disappointingly small. Although the Federal Reserve's half a percentage point cut will help to support demand, traders said it has fallen short of being able to provide succour to a stumbling world economy. With the American economy teetering on the brink of a recession, the challenge for the US is to stabilise the economy without prompting suspicions that it is cutting interest rates to bail out investors.
Moreover, the inauguration of a state-of-the-art bourse trading floor did little to entice either foreign or local investors to inject money into the market. Transactions value was 24 per cent lower than the previous week, with LE204.9 million worth of shares changing hands.
The Capital Market Authority (CMA) all share index has dived by three points to end at 602. This index, which includes all listed shares of both actively traded and second tier companies, is soon to be replaced by a new one designed by the Financial Times that mainly tracks the record of market big-caps and blue-chips.
As current unease in world financial markets eroded investors' appetite for risk, foreigners selling orders were double their buying transactions.
Market big-caps maintained their slide. MobiNil ended LE2 lower at LE60.36. The company's audited results showed a doubling of net profit to LE286.21 million for 2000. However, with its main competitor, Click-Vodafone considering an IPO in May, its leading market position could be challenged. MobiNil shares had taken the local bourse by storm after its IPO in early 1998. Shares rocketed from an issued price of LE10 to peak at more than LE185 in January 2000.
In addition to the spillover effect that the unfavourable international market sentiment towards telecom companies has had on local shares, local telecom companies are having to face their own woes.
EFG-Hermes, Egypt's leading investment bank, posted a lowering of its target price for the regional GSM operator, Orascom Telecom (OT), to LE79 a share from the previous level of LE89. Although EFG-Hermes attributed this to the decline in international telecom shares, it also said that the postponement of the issuing date for OT's results for the fiscal year ending December 2000, originally due to be released in the first week of April, have dimmed expectations. Due to difficulties OT is encountering with its African subsidiaries, EFG-Hermes' estimate of the company's revenues has dropped from LE2.4 billion to LE2.1 billion. OT has lost LE1.54 to close at LE28.25 this week.
Two companies, in particular, have been badly hit by the retraction in foreigner activity. Due to reluctance on the part of local investors to buy into the companies for religious reasons, both Al-Ahram Beverages Company, now dominating Egypt's alcoholic beverages market, and Eastern Tobacco, Egypt's sole producer of cigarettes, have closed in the red.
Helwan Cement had some good news to offer, managing to rank fifth on the highest value traded chart, with LE16.3 million worth of its shares changing hands. The company's reissuing of a newspaper advert for the sale of a 47 per cent stake has served it well, ending LE0.99 higher at LE42.
Also lucky was Suez Cement, which was actively traded during the week on news that four potential investors have formally asked for terms of the tender of the company's prospective capital increase. The four multinational firms are said to be interested in buying a 15 to 25 per cent stake reportedly on offer in the firm.
Another news-driven stock was that of Misr Hotels, which has been boosted by news of a government sale starting 23 March 2001. The stock closed at LE84.01.
The chemical sector star and one of Egypt's nine companies with GDRs traded abroad, Paints and Chemical Industries (PACHIN), has announced its first half-period results. PACHIN posted earnings of LE31 million for the six-month period ending 31 December 2000, compared to LE35.5 million for the same period in the previous year -- a 13 per cent drop. According to EFG-Hermes, although pre-tax profit slipped 26 per cent, the company, currently in the process of relocation, has provisioned for lower taxes due to the exemption it will enjoy on all production activities in its new facilities in Al-Obour City, thus cushioning the drop in net income.
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