Cautious optimism
Stock market experts see signs of a revival, but are reluctant to rejoice just yet. Wael Gamal reports
The Egyptian stock market, which has been suffering from a serious slump since January 2000, has shown signs of recovery during the past few weeks. Stock market indices have recorded a slow, but steady upward trend. Still, experts are in no hurry to cheer.
"There is light at the end of the tunnel," said Amr Maghrabi, head of EFG-Hermes' technical analysis unit. "Technically, to have prices swinging within the same level, as has been the case lately, is the first sign that the bear market is ending."
Based on the theory that the market changes in cycles, technical analysts predict a better future. Maghrabi said that upward trends are usually led by certain sectors, and the roots of the new market direction lie in the revival of the chemicals sector that began months ago. "Now, the market is led by Orascom Telecom's (OT) shares, which has jumped over the LE8 level to reach LE15," he said.
Other analysts believe the revival is due to a parallel recovery in international markets.
"The stock market reflects what happens in the wider economic context," said Maged Shawki, senior assistant to the minister of foreign trade. But a sustained boom, he added, needs more improvement in international markets and more cash inflows through emerging market funds. Professional fund mangers would typically initiate such movements and small investors would follow, thus improving the economy.
Although there is no correlation between the ups and downs of the stock market and those of the economy, a stock exchange decline indicates there is something fundamentally wrong with the system as a whole, while a rise in stock price levels suggests a healthier system.
Shawki said that new regulations for accounting standards, increased transparency, new listing rules for traded securities, the formation of a committee to decide whether a company can be listed on the exchange, introducing rules concerning disclosure, insider trading and regulating treasury stock purchases and the invalidation of the five per cent limit on the daily movements of share prices for the most active shares all increase market efficiency.
"All this is positive but not enough," Shawki said. "The recession is still there. Also, issuing new shares at a time when prices are falling is not wise."
However, Shawki said, the slump had some surprisingly positive effects on the market. The downward trend left little room for speculators, with only mid- and long-term investors continuing to be interested in the market.
Also, the bear market revealed the strength of brokerage companies that survived the slump and withstood the competition -- those with high-calibre analysts, solid financial background and international connections.
"Long-term positive momentum is related to economic activity in general," Shawki said. "Privatisation is not the only hindrance, a clearer exchange rate policy is also needed."
Al-Ahram Weekly Online : 16 - 22 January 2003 (Issue No. 621)
Located at: http://weekly.ahram.org.eg/2003/621/ec3.htm