Yet another index
Why are even the major market players disenchanted with the new stock market index? Shereen Abdel-Razek sounds out reactions
Although the stock market's new index fully complies with international criteria for choosing constituent companies, in experts' views, market players are not convinced.
The new Cairo and Alexandria Stock Exchange index, CASE30, was launched three weeks ago to replace its predecessor, CASE50, which comprised the largest 50 companies listed according to market capitalisation.
CASE30 is the first index launched by the bourse to measure share movement according to the adjusted market capitalisation by free float. This means that rather than listing companies according to the size of their market capitalisation, companies are now listed according to the free float stake of their capitalisation. Only companies with at least 10 per cent of their capital traded in the bourse will be included, even if they are not among the highest capital category.
"This method is more indicative of share performance than the overall market capitalisation, as the free float stake is what is really changing hands," said Joseph Iskandar, investment analyst at Prime Securities.
Since both the popular FTSE and Morgan Stanley indices use the same system, Egypt has thus become one of few emerging countries to conform to international standards.
A stock market committee has been formed to monitor the companies included in the index -- an exercise that will be reviewed twice a year.
Another important feature of CASE30 is that it takes companies' liquidity into consideration. A company has to be traded through 50 per cent of trading days during the a six-month period to remain on the index, even if it was a market heavyweight in terms of capitalisation or profit-making.
"Loss-making companies can be included in the index if they meet the liquidity and the 10 per cent free float criteria," said Sameh El-Torgoman, head of the Cairo and Alexandria Stock Exchange, at a press conference to launch the index .
All five sources contacted by Al- Ahram Weekly, including brokers, traders and portfolio managers, said hardly anybody is impressed.
One broker, who asked to remain anonymous, said that introducing new indices only serves to confuse everyone. He recalled that when the market was revived in the early 1990s, the only available official index was that of the Capital Market Authority, which included all the listed companies and was thus misleading. Brokerage firms and some companies had to compile their own reliable indices.
"Now we got used to these indices and it is confusing for us and our clients to switch," the broker said.
The most popular has been the Hermes Financial Index (HFI), created by Egypt's largest investment bank, EFG-Hermes. The HFI is a broad-based index that presently includes 31 actively traded companies, with a minimum of three-months trading, valued at a minimum of LE7 million, a minimum of 200 transactions and a minimum of 20 days traded. Reviewed every three months, the index uses almost the same criteria of CASE30
Taher Gargour of HSBC agrees with the anonymous broker. "Simply recreating the Hermes Index is not enough," he said.
Another market expert, who spoke on condition of anonymity, said there were too many indices being used already. Besides the CMA and CASE30 indices, and the handful of indices prepared by companies working in the market, the market as a whole is listed on the MSCI index for emerging markets and the International Finance Corporation (IFC) indices.
"It is neither a plus nor a minus to have many indices. Only a few indicative ones will be used by investors and brokers anyway," Gargour said.
Al-Ahram Weekly Online : 20 - 26 February 2003 (Issue No. 626)
Located at: http://weekly.ahram.org.eg/2003/626/ec3.htm