Volatility would be the best word to describe Egypt’s stock market in 2008 – actually, markets the world over.
After months of mind-numbing losses around the world, the year comes to an end on unrelentingly negative global economic news and fading hopes of a recovery.
Worldwide, investors were being battered by a wave of economic indicators pointing to recession in the United States, Britain, Germany and the Euro zone as a whole, while major emerging markets were toppling. In many cases, this led to investment flight from markets around the world – including the Egyptian Stock Exchange.
Overall, Egypt’s benchmark CASE 30 index tumbled 59 percent this year to close at 4,325.77 points on Dec.21 – at one point hitting a low of 3,686.35 points after peaking at 12,000 in April.
The year kicked off on an optimistic start, which saw the CASE 30 index floating comfortably over 10,000 points in January – occasionally straying above 11,000 amid forecasts that it would reach 12,000.
As investors looked forward to a fruitful 2008, an unexpected crash hit the market on January 20 after fears of a United States-led global economic downturn materialized, leading to what was deemed at the time as one of the most chaotic weeks on world markets since September 11, 2001.
The action kicked off a day before when Asian traders began the day concerned about US economic developments that had emerged at the end of the previous week.
Closer to home, on just two days – from January 20-22 – the market plummeted nearly 1,500 points to just above 9,600, down from its 11,000-point mark.
Recovery came quick as the index hit an all-time high of 11,500 points in mid-March as announcements of multi-million pound mergers and acquisitions poured in.
On March 12, some 161 million securities were traded in over 78,000 transactions, resulting in a market capitalization of LE 935 billion and a trading value per day of LE 4.3 billion.
The stock exchange was also busy, signing a Memorandum of Understanding (MoU) with the Cyprus Stock Exchange on Feb. 27, which ensures cooperation in the exchange of information regarding various regulatory frameworks, trading systems and indices creation.
A number of economic hurdles began to surface in April, with soaring inflation and interest rates. Oddly enough, the index managed to stay afloat, hitting a fresh record high of 11,935.67 points, only 65 points shy from the 12,000 mark.
“The market continued to outperform itself, quickly posting sharp leaps until it reached its peak by the end of April, said Sherif El Sweify, technical analyst at Delta Rasmala Securities. “A decline began in May, triggered by the government’s measures in May and later by the financial crisis in the US.
“The downtrend was initiated then with no signals the bearish trend has bottomed out.
The year’s optimistic start took a pounding in May, after parliament approved steep increases in fuel and cigarette prices and vehicle license fees on May 5 to cover costs of public-sector pay hikes. The measures surged gasoline prices by 35-50 percent overnight, weighing on Egypt’s inflation rates. The government also abolished privileges of energy-intensive companies in free zones as part of the budget amendment.
The move directly tolled on companies in industries, including steel, fertilizers, petrochemicals, natural gas liquefaction and natural gas transport. The index plummeted more than 1,700 points between May 5 and May 15.
A selling frenzy sent the market on a downward spiral all summer as investors dumped blue-chips affected by the May decisions.
Muddying the water, El Sweify explained, were rumors the government would impose taxes on traded stocks, despite reassurance from Minister of Investment Mahmoud Mohieldin that this will not happen.
Panic ensured despite a name change and regulation facelift. In June, the CASE officially changed its name to the Egyptian Stock Exchange (ESX). The move aims to increase efficiency through integrating the Cairo and Alexandria-based exchange into one entity.
An overhaul of the ESX trading rules was also announced by the Capital Market Authority (CMA) in an attempt to improve trading efficiency and corporate disclosure.
The new rules include reducing the minimum nominal share value to LE 0.10 instead of the previous LE 1. The amendments also create a special registry for auditors who are entitled to supervise and review operations of listed companies. In addition, fines imposed for violations of the capital market law have been extended to a maximum LE 20 million.
Still, skyrocketing inflation ravaged investor confidence in the market, which plunged by some 50 percent by the end of summer. Inflation peaked to a 16-year high rate of 23.6 percent in the year to August, pressuring the central bank to hike its overnight interest rates six times this year.
Things slid from bad to worse after a Moody’s report downgraded its outlook on Egypt to negative from stable in June, largely causing failure of the government’s highly anticipated sale of Banque Du Caire.
Starting September, the market was rocked not so much by recent local factors as by the aftershocks of the US markets collapse. The effects of the long-brewing real estate mortgage crisis in the United States reached the Egyptian stock market by mid-September.
Investors were rocked by back-to-back announcements of investment giants Lehman Brothers declaring bankruptcy and Bank of America buying out Merrill Lynch for $50 billion.
The events signaled a seismic shift in markets worldwide, sending the Egyptian bourse into a tailspin. “These events accelerated the bearish trend which began on the local market ahead of the global one, El Sweify said.
“By the beginning of the year, global markets performed on a bullish trend. These markets were overvalued, so foreign investors entered into undervalued markets like ours, he pointed out.
“But now, these markets are undervalued too, so foreign investors returned to their home markets and ditched ours, he added.
Markets worldwide tumbled as worries about Lehman counterparty risk and further financial market turmoil sent investors scurrying for safe havens such as gold.
As a deepening crisis took new victims, the US Congress moved on with a $700 billion bailout plan in a bid to throw a life line to the battered financial industry.
The Egyptian market remained enthralled by movements in Europe, the United States and the Gulf region. Since September, the Egyptian market has generally followed the erratic ups and downs of Wall Street and, to a lesser extent, those of Asian and European stock markets.
Among the good news in September, however, was the announcement that Egyptian investment bank Beltone Financial would launch Egypt’s first exchange-traded fund (ETF) by year-end tracking the CASE 30 index.
In November, the stock market headed for another precipitous plunge as fears of a global recession stoked panic. On Nov. 24, the index sank to 3,686.35 points – its lowest level since February 2005 – as the market resumed reeling on global market woes.
At that time, the market took a severe blow, losing almost 65 percent of its value since peaking in April this year.
“The market is extremely undervalued, and stocks are trading on very cheap levels. They are worth much more than this, El Sweify said. “We [traders] all see potential in the market, however, the trend remains negative.
Some investors cautiously shopped for bargains after most Egyptian shares and posted their biggest decline ever in October and November on fears of a deepening global recession.
As euphoria over the Citigroup rescue effort quickly faded in markets worldwide – including Egypt’s – concerns about sharply deteriorating economies such as China rose. Since then, a seesaw trend has dominated the market that has followed the global appetite for stocks.
The worst hit sectors this year, El Sweify said, include retail stocks that suffered an “overreaction from investors who quickly dropped these shares.
“Financial constituents were also severely beaten by thi
s bearish trend, as investors shunned away from financials after Lehman bankruptcy, he added.
Shares in EFG-Hermes, Egypt’s largest listed investment bank, have slipped 71 percent this year. On Dec. 17, the stock traded at LE 18.80 down from this year’s peak at LE 67.66.
Shares in Commercial International Bank (CIB) Egypt’s largest listed lender, have slipped 42 percent so far this year. The stock traded on Dec.17 at LE 34.75 down from its year-highest LE 64.88.
“Our banks are not over-exposed to credit as was the case in developed economies, but panic dragged these stocks, he added.
Index heavyweight Orascom Construction Industries sank 53 percent this year, trading at LE 126 per share on Dec.17 after peaking at LE 684.54 per share. Sister company Orascom Telecom also plunged 68 percent this year to LE 28.50 down from its peak level at LE 93.23 per share.
This year’s initial public offerings (IPOs) on the stock exchange include Egyptian oil support company Maridive & Oil Services, which raised at least 30 times what it was seeking in a private share placement. Maridive was initially seeking to raise up to $278 million selling shares to private investors and the public to fund expansion.
It sold 64.8 million shares in the private placement and 9.4 million in a retail offering at a price range of between $3.25 and $3.74 per share. The stock was listed on May 5.
Egyptian developer Palm Hills Developments also began trading on the Egyptian stock exchange on May 8 after a $201.3 million (IPO).
Shares in Pioneers Holding began their first day of trading end of June after a private placement in the investment and brokerage company a month earlier. Starting Nov. 27, the Stock Exchange switched to X-Stream – a high performance trading system supplied by the world’s largest exchange company Nasdaq OMX.
