Market upsurge continues
In spite of continuing turmoil in Iraq, Wael Gamal finds that the Egyptian stock market is still booming
The stock market is on the rise again. The Cairo Alexandria Stock Exchange, CASE 30 index, has gained more than 140 points over the past two months, a rise of 27 per cent. Against all expectations the war has not adversely affected the market. On the contrary, it has provided bearish investors with a pleasant surprise.
Just before the outbreak of war, the index hovered a few points above the 500 point level, standing at 509.25 at the close of 19 March. The following day, with the beginning of military action, the index jumped 20 points following a steady upward trend and reaching 645 points in the beginning of May. This is only the second time that the index has exceeded the 600 point level since dropping below it in the aftermath of the events of 11 September 2001.
The war has caused a stock market boom throughout the region, especially in Saudi Arabia and Kuwait. Indeed, Maged Shawky, senior consultant to the Minister of Foreign Trade Youssef Boutros Ghali, says that, "more foreign investments, mainly Arab, [have] entered the Egyptian market." This was helped by the closure of the Kuwaiti stock market in the first phase of the war. Also, the short war ended the precautionary tendency to liquidate assets and led to money being pumped back into the stock market. Analysts are also looking at the possibility of Egypt's construction and cement sector benefiting from the reconstruction of Iraq.
But the war effect is not the only factor behind the rise. Shawky is keen to point out the domestic factors. "The new exchange rate policy is playing a major role. Despite all the objections raised concerning the timing, it [has] helped to rationalise prices. It has transformed the relationship between the exchange rate and the market by narrowing the gap between the official rate and the black market [hence] limiting speculation." Furthermore, with the bottoming out of prices, investors have been induced into buying stocks again.
The government's new legislations concerning the stock market have also paved the way for this. For example, the abolition of the 5 per cent limit on 14 stocks has helped to make prices reflect the movement of the market more accurately.
Although the trading centre of gravity has moved from bonds to securities, reflecting investors' regained trust in the market, Shawky describes the volume of trading as too calm. "It ranges from LE40 to 60 million a day, which, although not weak, is not as strong as the upsurge at end of January and beginning of February, when it reached 100 million pounds. If this was the case now, we would have said that the upsurge is here to stay."
However, prospects for the market's long- term success rely on the state of the "real" economy which, given the latest high unemployment statistics, is not promising.
