18 - 24 April 2002
Issue No.582
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Al-Ahram Weekly Online 18 - 24 April 2002 Issue No.582 |
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Bonds a better buy
The distressing politics of the region have blighted capital-market confidence. And investors have opted for safety first. Sherine Abdel-Razek reports
According to the principles of investment, bonds are safest: in times of economic slowdown they hold their value best. Traders on the Egyptian stock exchange have applied this principle rigorously for the past four months. Bonds, which give a fixed yield (whereas stocks rise and fall at the behest of market fiat), have accounted for over half of transactions (55 per cent).
Lately, this trend has escalated. In the week ending 11 April, when violence in the occupied territories was accompanied by a global depression in the capital markets, investors scurried to safety, buying bonds by the bucket-load. Of the market's overall turnover of LE415.18 million, 69 per cent was in bonds. Those investors who failed to migrate saw the value of their assets decline: 89 shares fell during the week, while only 30 registered a rise. Foreigners tended to flee Egypt's market altogether. They bought LE15.765 million-worth of stocks, but sold a huge LE23.389 million.
Some individual shares did reasonably. Investment bank EFG-Hermes posted a 26.5 per cent price increase, closing at LE4.01. This came after EFG's management decided not to distribute any dividend for the fiscal year 2001, after its results showed a 63 per cent decline in profits compared to 2000. Another bank's shares also reflected its dividend policy, though the opposite way round: Commercial International Bank (CIB) was the most active share of the week, cornering 5.22 per cent of the overall transactions ahead of an expected dividend payment. It ended at LE 31.72.
Dividends can suggest a company is doing well enough to disburse spare cash; and many companies think prospective share buyers will interpret payment as a sign of a company's financial health. But the market also likes to see companies retaining dividends to invest in their operations, especially in hard economic times. This may explain why Al-Watani Bank of Egypt, also expected to pay a dividend later this month, did well: its shares climbed to LE21.85. Or the reason could be entirely different: an international Arab financial institution has recently offered to purchase a 40 per cent stake in the bank. The bank issued a counter-statement agreeing to sell 33 per cent of its shares to the institution on the condition that the remaining seven per cent is distributed to its current shareholders.
The bank sector also posted the stock market's worst decline. Misr International Bank (MIB) fell 14 per cent to close at 19.12. This took place after the bank distributed a LE2.75 dividend coupon.
Orascom Construction Industries (OCI) also approved a LE0.55 dividend per share corresponding to the six months ended 31 December 2001. This was in addition to an equity issue of one share for every 20 shares held. The share issue will increase OCI's market capitalisation from LE825 million to LE866.5 million.
Misr Aluminium was another company revealing its profit distribution plans. It will issue a free share for every four existing shares. Only six per cent of the company's shares are free float; the rest are owned by the Holding Company for Metallurgical Industries. The company posted an estimated net profit of LE110 million.
Outside the trading floor, the week also saw significant macro-economic moves, though these failed to perk up the capital market. A foreign ministry official said that representatives from the World Bank and the African Development Bank would arrive in Cairo soon for talks on a joint loan of $1 billion. The European Union also announced that it plans to drop the customs taxes levied on steel products imported from Egypt. Preferential treatment will be given to 13 out of the 14 steel products that Egypt exports to the EU.
Moreover, the insurance rating agency AM Best has affirmed the "A" financial strength rating of Al-Chark Insurance Company. According to AM Best, the rating is based on the company's excellent capital base, strong operating performance and its position as one of the leading insurance providers in Egypt. None of this, however, could calm investor jitters. Stocks, for now, are out, while bonds are very definitely in.
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