31 Jan. - 6 Feb. 2002
Issue No.571
|
Al-Ahram Weekly Online 31 Jan. - 6 Feb. 2002 Issue No.571 |
||
| Published in Cairo by AL-AHRAM established in 1875 | Current issue | Previous issue | Site map | ||
Bulls becoming bears
The gloomy economic atmosphere is depressing the capital markets. Sherine Abdel-Razek reports
After suffering weeks of uncertain macroeconomic conditions and a beleaguered foreign exchange regime, the market was deeply vulnerable to the negative report on the Egyptian economy released during the week ending 24 January.
Fitch, the international rating agency, announced that it had moved the long-term rating of the Arab Republic of Egypt and the long-term ratings assigned to the local public banks to its negative outlook band.
The all-share Capital Market Index responded by losing four points, ending the week at 610.13. The volume of transactions was higher than the previous week -- LE495 million compared to LE163.6 million -- but most trades were "sells" spurred by the report.
Explaining its decision, Fitch argued that "efforts to manage both the exchange rate and interest rates whilst preserving reserves are, to an extent, in conflict, and risk delaying the economy's adjustment to external shocks and its eventual recovery." The report also questioned Egypt's ability to meet its obligations to international donors.
The transactions of foreign investors reflected the loss of confidence, too, with the value of their selling orders reaching LE90 million compared to the LE29.9 million worth of shares they bought during the week.
The government's foreign exchange policy, based on a managed peg, has pushed the value of the dollar to almost six pounds on the black market. This is 29 per cent higher than the LE4.51 core price set by the government on 13 January (with official allowances for fluctuation of three per cent above or below this price).
Commenting on Fitch's report, a statement released by the Central Bank of Egypt (CBE) defended the exchange system and described it as "flexible enough to reflect market forces."
In another defensive move, the CBE launched a wave of inspection campaigns against exchange bureaus that led to the temporary closure of 20 currency-trading shops.
Most currency dealers stopped selling dollars by the end of the week. Banks have no dollars for clients because the central bank cannot provide any; even state-owned banks can rarely secure more than a maximum $500 for travellers who present travel documents.
The dearth of the dollar is the outcome of Egypt's declining foreign currency reserves over the last three years. The reserves bottomed out at $14.34 billion in October, down from the $20 billion held at the end of 1998.
Under these circumstances, it may be no surprise that other rating agencies and banks are frowning on Egypt. The American Investment bank, Goldman Sachs, has downgraded its rating of market leader MobiNil, due to doubts about its economic future in light of the Egyptian economy's slowdown. MobiNil's shares were not spared the slide suffered by 83 companies during the week. Its price ended at LE 30.8 -- a 52-week low. This fall came despite the company's encouraging full-year results.
Subscribers to the company's network, one of Egypt's two GSM networks, totalled 2.03 million by the end of 2001. It had 1.21 million a year ago.
Regional mobile operator, Orascom Telecom followed MobiNil in the slide, slipping to LE10.76.
Media Production City fared well during the week after it held an analysts' briefing in which it outlined some positive investment plans. It closed at LE12.03.
After denying rumours that it had approval from the Health Ministry to produce the sexual potency drug, Viagra, Pfizer Egypt lost ground. The company said it had applied for a licence two years ago but had been turned down.
Analysts are unsure how long the market's difficulties will last as there is no evidence that the government will change its policies soon. The governor of the Central Bank, Mahmoud Abul-Oyoun, has noted recently that the pound could be linked to a trade-weighted basket of currencies in the future but the current dollar peg would remain in place for the time being. Furthermore, Prime Minister Atef Obeid dismissed as "rumours" talk that the Egyptian pound will be further devalued again in the near future, saying that there is no justification for raising the exchange rate.
"Dollars are available to pay for imports of basic requirements," he said.
Investors hope that a breakthrough will come from abroad. A large donors' conference will take place in the Red Sea resort of Sharm El-Sheikh early next month. Egypt is seeking about $2.5 billion in fresh funds.
Aside from the numbers and speculation and uncertainty, the market infrastructure itself does not help. Trading was still slower than normal due to delays caused by the new centralised settlement system introduced last week, with small brokerages catering to retail investors worst affected.
© Copyright Al-Ahram Weekly. All rights reserved
 |
|
|||||||||||||||||
| ARCHIVES Letter from the Editor Editorial Board Subscription Advertise! |
WEEKLY ONLINE: www.ahram.org.eg/weekly Updated every Saturday at 11.00 GMT, 2pm local time weeklyweb@ahram.org.eg |
 Al-Ahram Organisation |
Recommend this page