Some economic pundits have recommended that global stock market data from the end of 2008 should not be included in analysis, but treated as an outlier with little bearing on more significant market trends.
However, recovery since those dismal months indicates the relative strength of a market. Judged by this rubric, the Egyptian stock market can see the silver lining on the global crisis.
The EGX 30, Egypt’s benchmark index of the 30 largest companies being traded, rose by 46 percent in 2009, making it the strongest performer of any Arab benchmark index tracked by Bloomberg.
The EGX 30 hit bottom at 3,389 points in February, but by August it had shot up 90 percent at almost 6,500 points as growing confidence saw foreign investors buy into blue chips.
Several stocks caused fluctuation on the market, earlier in the year it was real estate developer Talaat Moustafa Group as its former chairman received the death sentence in a high-profile murder trial. Another major player, Orascom Telecom, caused ripples in the market as it battled France Telecom for ownership of Mobinil, a saga that will continue into 2010.
Some newcomers on the scene quickly became market movers. A merger between financial services firm Pioneers Holding and investment bank Beltone Financial created a buzz on the market, as did private equity firm Citadel Capital’s listing on the stock exchange in early December.
On news of the Dubai debt crisis, Egypt’s benchmark index plummeted to its biggest daily loss in 13 months, but recovered over the following days.
At close of trade Tuesday, the index was at 6,412 points.
Changing things up
Still, 2009 has by no means been an easy year. Strong efforts towards increased regulation mirrored a global trend. In addition, a reshuffling of the top 30 companies on the EGX 30 Index demonstrates that some companies did not manage to stagger out of 2008’s record lows, and others reaped the benefits.
In February, the “Global report prepared by Global Investment House evaluated Egypt’s benchmark index in 2008. An all time single year loss of 56.4 percent swept away the growth of the past five years, reducing the index to levels last seen in 2005.
Suffering most were the travel and leisure sectors, which lost 70.5 percent of its value, the real estate sector, which saw a 69.4 percent decline.
Attempts to jumpstart growth included the psychological: a name-change. In March, the CASE 30 Index changed its name to the EGX 30 Index.
The shift seemed to spark a new direction: in early April the Capital Market Authority (CMA) recorded that stock transactions had hit a healthy LE 78.3 billion since the beginning of the year. CMA credited local and Arab investors’ engagement in heavy purchases, primarily of shares in textile and real estate.
The beginning of the new fiscal year on July 1 saw fresh initiatives undertaken in hopes for a better year. Egyptian Financial Supervisory Authority (FSA) Chairman Ziad Bahaa El-Din pledged that the new market regulator would start cracking down on market manipulation and insider trading.
In July, a derivatives exchange was announced and should be up and running by 2011. Although delayed from a late 2009 launch by the crisis, the exchange looked to begin futures trading linked to main index as well as possibly incorporating swaps and options later.
Later in July, the bourse announced a change in the composition of the EGX 30. The seven new companies included Palm Hills Development, Upper Egypt Contracting, Egyptian Electrical Cables, Alexandria Spinning and Weaving, Extracted Oils, Egyptian Resorts and Nile Cotton and Ginning. One of the major drop-outs was Naeem Holding.
September saw the announcement of a new index, the EGX 100, to collate EGX 30 and EGX 70 stocks without weighting them based on market capitalization, allowing investors to compare companies from both indices without the distortion of the volume of stocks traded.
Over the year, Bahaa El-Din proved he was as good as his word, suspending a number of stocks for varied periods and reasons, which he says, “seem to have improved the level of disclosure.
“It’s also sending a message to those that have been concerned from time to time about insider trading and manipulation that the exchange and the regulatory body are taking it seriously, he told local news.
Riding the cycle
Although regulation was hailed by international and domestic watchdogs as a necessary measure to strengthen Egypt’s image in the eyes of foreign investors, particularly in the still-jittery post crisis atmosphere, the crackdown was not without cost.
The EGX 70 index of small and medium companies fell significantly in the two months following the suspensions. Luckily, overall growth was strong enough to maintain a 59 percent increase overall.
December brought another aftershock of the crisis with news of Dubai’s massive debt default. Although markets around the world shuddered a bit, most concluded that the effects will be largely contained in Dubai.
Egypt’s benchmark index dropped almost 8 percent to 5,868 points, its biggest daily loss in 13 months, but recovered over the following days.
In a report released this week, HC Brokerage said, “We view developments in the MENA region surrounding the Dubai debt crisis as a strategic opportunity for investors to look at Egypt as a safe haven and place an ‘overweight’ on the market.
