7 - 13 June 2001
Issue No.537
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Al-Ahram Weekly Online 7 - 13 June 2001 Issue No.537 |
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Biding their time
Investors are holding onto their pounds as they wait to see the direction of new developments in the capital market. Sherine Abdel-Razek reports
Egypt's long-awaited inclusion in the Morgan Stanley Emerging Market Free (EMF) Index on 31 May failed to give transactions a much needed boost during the trading week ending on the same day. The Capital Market Authority index lost 6 points to close at 618 while the overall value of transactions came to a mere LE259 million compared to LE332.2 million the previous week.
Observers say that it typically takes at least a week before the impact of a country's inclusion in a global index is registered by the market. The index is used by global fund managers to track the performance of emerging bourses.
Currently Egypt's weight in the Emerging Markets Free (EMF) index is 0.28 per cent, as had been announced prior to the local bourse's inclusion. According to EFG-Hermes, the weighting value for Egypt's market was calculated after taking into consideration only the free float stakes of the 14 Egyptian companies included in the index. This method was used despite the fact that other markets included in the EMF are weighted on the basis of Morgan Stanley Capital International's (MSCI) previous methodology for weighting which was on the basis of full capitalisation.
MSCI is due to begin adjusting all of its indices to free floats in November 2001. Until those adjustments are made, Egypt will remain underrepresented in the EMF. After the adjustments, Egypt's weight is expected to rise to 0.47 per cent.
A commentary on EFG-Hermes's Web site suggested that some investors may adopt the float-adjusted indices prior to November 2001. If this happens, investors' view of Egypt's effective weight in the MSCI indices will tend to be higher than 0.28 per cent.
Foreign transactions offset the recent decline in the performance of the major companies as foreigners were net buyers, with their buying orders comprising 32 per cent of total market turnover compared to their selling transactions which represented 18 per cent of turnover.
The leading sector, the telecom sector, fared poorly during the week, unable to escape from the setbacks suffered by telecom shares worldwide. However, its leader Orascom Telecom (OT) has announced that it has repaid $109 million of a $200 million syndicated loan arranged by Chase Manhattan and Citibank.
It said that this payment was facilitated through new local currency loans -- under better terms than the previous loan -- provided by three local banks. The refinancing will raise Orascom Telecom's borrowing power and eliminate foreign exchange risks. Orascom Telecom also said it was evaluating long-term financing packages from institutions such as JP Morgan, Merrill Lynch, Lehman Brothers, CSFB and Barclays and wanted to select a bank to advise it on financial strategy, including corporate structure, raising equity and strengthening its balance sheet.
Anticipation pervaded the banking and cement sectors as investors awaited the execution of acquisitions in the former and privatisations in the latter. However, as little movement actually occurred in these ambitious plans, investors held back.
Analysts believe that this week's setbacks resulted from concerns raised by accusations of corruption in the management of the bourse. Such worries were intensified by the Minister of Economy Youssef Boutros Ghali's decision to put the Cairo and Alexandria Stock Exchanges under the supervision of the Central Auditing Agency -- an action taken to imply the credence of at least some of the accusations. Ghali's decision followed the presentation of documents in parliament by MP Kamal Ahmed which showed that some of exchange's personnel, whom he described as "inexperienced," were paid exorbitant salaries. The government also decided to transfer bonuses paid to bourse employees to a special account at Banque Misr, which would then disburse these monies to employees. This measure was taken to thwart attempts at income tax evasion, another accusation made by Ahmed.
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