CAIRO: With the Egyptian stock market following the erratic downs of Wall Street and to some extent those of Asian and European stock markets, when is it going to see a rebound?
“That’s the trillion dollar question these days, isn’t it? Mohamed Yassin, managing director of Shuaa Securities, said Tuesday on the sidelines of the Euromoney Egypt Conference. “Regional markets – Egypt included – will attempt to create stability and control the sharp downfalls till the end of this year. Then [hopefully] by the beginning of 2009, we will see gradual pick ups in trading.
After peaking at around 12,000 points in April, the Egyptian Stock Exchange got hammered – hit by higher inflation rates and later by the global financial turmoil in the US and Europe. To date, the stock market has lost around 50 percent of its previous gains.
“What is happening in the market is coming out of fear and not out of fundamentals. I don’t believe that markets reflect fundamentals on either a macro or micro level, Yassin pointed out. “I think liquidity is stored in other assets, whether it’s real estate, or companies, or under a mattress. .. Once fear is gone, we will begin to see more stability in the market.
Maged Shawky, chairman of the Egyptian Stock Exchange, agreed that fear and lack of confidence in the global financial system are the routes behind sharp market plunges.
“This crisis is unprecedented, and no body could predict this would happen, he said. “I was in New York when Lehman Brothers collapsed, and everyone was stunned. The [attitude was] who’s next, who’s the next bank that will fall. And we’re talking here about an institution that has been around for 20 years and managed to survive several [slowdowns] before but not this one.
Pointing to the Egyptian Stock Exchange, he described previous market collapses as wave of correction. “It’s partially because some stocks were over-valued and because foreign investors are exiting the market. While the bourse plummeted to very cheap levels – not seen for almost two years -several analysts deem the market a “golden opportunity for medium and long-term investors. “This is a historical opportunity for our region even though this is a global crisis, Yassin pointed out. “I believe the lowest risk markets in the world are where we are, Egypt and the Gulf. . When markets go down as they are today, risk is low, so it’s an opportunity to invest today.
“In times of crises, although people lose a lot of money . new fortunes are being generated, he added. “In Egypt and the Gulf, there are excellent opportunities for investors to build on the medium and long-term. Risk here is less than in global markets.
These economies, he added, are booming with surpluses and excess liquidity. “With zero growth coming from the West, this creates an opportunity for us to better use our liquidity. We can make this region a safe haven.
Companies performance, he clarified, is very positive in the region, and growth expectations are significantly higher than those of developed markets. “Investments are going to go to countries with higher growth rates because this is where companies can get bigger.|
So, how can the region, Egypt included, be turned into a safe haven? He suggested utilizing this liquidity and pumping it into strategic business sectors that will boost the entire economy and generate employment opportunities.
“If you invest in the market today, then returns over the next 2-3 years will be the highest returns achieved.
Lack of confidence is the problem with the market and not performance, he explained. “If we can erase that fear factor, we’ll have better returns here.
As one prominent financial investor recently said, “The issue now is not to have a return on your capital, but to return your capital.
Shawky pointed out that what is needed in the market now is better reinforcement of regulations.
“We need a compliance of regulations. . At times of crisis, regulations are put to the test. You don’t test a regulator when everything is up and people are happy. Now is the time . to know if the system really works.
Despite having short-selling trading stopped in most developed countries, Shawky argued that introducing it here could help the market correct itself more quickly. He highlighted differences between short-selling internationally and short-selling mechanisms to be applied here. Internationally, he said, short-selling occurs when an investor sells a stock and buys it later. While in Egypt, an investor has to borrow the stock and hold in his/her portfolio before it can be sold.
“Such a mechanism provides some sort of protection as opposed to international markets, Shawky pointed out, adding it was still too soon to tell when short-selling will be applied in Egypt. “It takes time to set it up.
Brokers are currently being trained on how to professionally execute short-selling.
On the other hand, Yassin is not in favor of introducing short-selling into the market during times of panic. “Thank God we don’t have short-selling here.
If we had it in this part of the world during this crisis, I believe problems would have been much greater in this region.
He explained that a lot of education and knowledge are required first before applying short-selling. “For the region, there’s high risk for those who don’t know how to use it.
On the other end of the spectrum, Shawky said that the ongoing crisis should not lead to a postponement of plans. “The current crisis should not put you at halt till things improve again.
