26 July - 1 August 2001
Issue No.544
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Al-Ahram Weekly Online 26 July - 1 August 2001 Issue No.544 |
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A lethal cocktail
The market took a beating last week due to negative internal and external factors, Al-Ahram Weekly surveys the damage
A lethal cocktail of domestic, regional and global woes contributed to giving the Egyptian bourse one of the worst weeks in its history, Sherine Abdel-Razek reports. The dismal performance was registered by the EFG-Hermes financial index, one of the market's key indices, which hit seven-year-lows twice during the week.
The EFG-Hermes index, which includes the shares of the market's 22 big caps, ended the week on Thursday at 5,547.10, breaking Tuesday's previous seven-year-low of 5,611.05. Thursday's level was 66 per cent below the index's all-time high of 16,448.52, which it hit in 1997. Also registering the market's poor performance was the Capital Market Authority's (CMA) all-share index which dropped 14 points to close at 590.
But the decline was not confined to the big caps; many second-tier players also witnessed their shares' dip to all- time lows. Out of the 153 companies that traded their shares during the week, 98 companies saw their stock shed value.
Escalating regional tension over the past two weeks and the steep decline in international capital markets cast a shadow over local market transactions.
Amidst this situation, Britain's key FTSE 100 Index was down 1.6 per cent by mid-week. Because there are nine Egyptian stocks currently traded on the London Stock Exchange in the form of global depository receipts (GDRs), FTSE's decline was reflected in the performance of the GDRs' twin shares traded in the local markets.
Domestic factors also weighed heavily on the market. The most recently implemented foreign exchange regime, which is a mere two weeks old, is coming under fire for having failed to stabilise the price of the dollar against the Egyptian pound. Currently, dollars are only available on the black market at a rate at least 10-15 piastres above the official rate.
"The government is not delivering on its promises. It is a bit asleep," said a market expert quoted by Reuters. He suggested that major privatisations are needed following a long period of stagnation in this programme and that high calibre executives are needed to revamp policy at the Central Bank and the Capital Markets Authority.
On the micro-level, that is at the level of the performance of companies traded on the market, the view is also bleak. Concerns about Orascom Telecom's (OT) purchase of a licence to operate a mobile network in Algeria dragged the market-mover's stock to an all-time low to end the trading week at LE20.5.
During OT's press conference this week to announce its quarterly results, it did not address concerns about the licence or the price paid for it. It also declined to disclose sources of financing the deal.
Algerian telecom authorities announced last week that OT had won Algeria's second GSM license with an offer of $737 million. The only other bidder, Orange, a unit of France Telecom, offered $422 million for the license, leaving brokers to question whether OT had paid too high a price.
MobiNil, in which OT is a 31 per cent shareholder, also fell sharply to close at LE55.96, losing LE5.09.
New all-time lows were also hit by Ezz Steel Rebars, Ezz Ceramics, and the film studio and entertainment group Media Production City Company.
Making things even worse was a 90-minute shutdown of the bourse's trading system due to technical difficulties on Tuesday. As a result, some investors chose to withdraw their bids and offers as a precaution against further problems.
Unexpectedly, the overall volume of transactions for the week, at LE329.3 million, was better than the previous week, suggesting that investors were taking the opportunity to accumulate shares at bargain-basement prices.
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