Al-Ahram Weekly | Economy | A glimmer of hope

		18 - 24 July 2002 Issue No. 595 Economy	Current issue Previous issue Site map
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A glimmer of hope
A set of new regulations have injected some optimism into the market, even if transactions remained dispirited. Sherine Abdel-Razek reports

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Alerted by a steep decline in market performance, a retreat in investor confidence and negative ratings by international rating agencies, Egyptian authorities have introduced a number of new rules to give the market a push.
In addition to the Central Bank of Egypt's recent rules governing profit repatriation by foreign investors and the start of a new system for trading government bills, the Stock Exchange has set up an over-the-counter market and announced its dismantling of the five per cent ceiling on daily share price movements.
Before the latter move was taken, the maximum allowed rise or decline in share prices in a day was five per cent -- a rule experts considered distorted free market forces.
The abolishment of the five per cent ceiling will be implemented in two stages: the first will include the 12 to 14 most actively traded stocks, including MobiNil, Orascom Telecom and Commercial International Bank (CIB). The remaining stocks will be dealt with in the second stage.
Market authorities are also preparing to introduce a new trading mechanism -- margin trading -- through which investors are provided with a credit facility to avoid paying for an entire trade up front. Investors will be given the right to purchase securities through acquiring a loan, the collateral of which will be the securities themselves.
Meanwhile, the market reacted positively to the Holding Company for Metallurgical Industries' plan to offer up to 90 per cent of Egypt Aluminum Company's shares to foreign or local investors.
The holding company said it is considering selling the shares to investors specialised in aluminum production.
Eight per cent of Misr Aluminum was offered to the public in 1998 for LE233 million. Misr Aluminum is Egypt's sole producer of primary aluminum. It has plans to raise its production capacity to 300,000 tonnes a year from the current 190,000 tonnes.
Shares in Egypt Aluminum soared by the maximum five per cent allowed after the news. It closed the week at LE11.35.
Overall, trade was still subdued and focused on small-cap shares, particularly cement stocks, in the hope of more mergers and acquisitions in the sector. The value of transactions in the week ending 11 July came to LE309 million. Bond transactions alone cornered LE206.4 of this amount.
One of the week's popular stocks was Arab International Contractors', which traded in huge volumes after a resumption of trade following a suspension due to disclosure concerns. The stock closed at LE1.49.
The pharmaceutical sector, one of the market's most popular in the last weeks after announcements of licensing a local company to produce Viagra, did not fare very well. Pfizer Egypt's sales of the sexual potency drug were lower than expected in its first week -- sales stood at a total value of LE3 million.
Foreign participation in general was extremely low, keeping the large-cap shares unusually subdued. Foreign transactions came at about six per cent of market transactions on the buying side and four per cent on the selling side.
One of the main positive developments during the week was a marginal increase in the pound/dollar exchange rate. By the end of the week, the dollar was traded at LE4.84-4.99 compared to 5.05 during previous weeks. This was triggered by the dollar's weakness against other currencies and an inflow of summer remittances from Egyptian expatriates. The dollar plunged in international markets last week and was abandoned for the euro as the parity between the two currencies tightened.
The pound has been devalued several times since early 2000 and has the weakest ever official rate of 4.6453 based on a managed peg system.
Remittances are considered one of the main sources of foreign exchange to Egypt along with tourism and receipts of the Suez Canal. The latter recorded an increase in May that brought it up to $162.5 million from $153.9 million in April, but down from $167.7 million in May 2001.

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