The Egyptian Exchange (EGX) indices showed a mixed reaction on Wednesday, following the Central Bank’s decision to float the Egyptian pound and raise the interest rates by 600 basis points. The initial response was a sharp rise of over 5%, as the pound crossed the EGP 50 mark.
However, the indices soon changed course, and the benchmark EGX30 fell by 2.29% to close at 29,966 points. The EGX70 EWI also dropped by 3.40% to end at 7,202 points.
The broader EGX100 EWI and the EGX30 Capped declined by 3.39% and 3.49%, respectively, to settle at 10,177 and 37,137 points.
Despite the overall downturn, the Commercial International Bank’s stock gained 0.59% at the end of trading, reaching EGP 76.45 per share.
Mohamed Fathallah, Managing Director of BLOM Egypt Securities, said that the stock market is closely linked to the dollar price, and the stock indices tend to rise with the dollar appreciation.
He explained that the 30% certificates issued by the Central Bank are not much different from the 27% certificates, as they both have a maturity of three years.
He added that the Central Bank aims to control the parallel market and enable clients to buy and sell dollars at reasonable prices from banks.
He further stated that there is anticipation for the dollar price to stabilize, which will not happen in a short period, and that the available dollar balance and the demand and supply of the market will be monitored.
The market saw a trading value of EGP 9.68bn, through trading 1.2 billion shares, with 229,600 transactions, involving 208 listed companies. At the end of the session, 43 stocks rose, with Abu Dhabi Islamic Bank – Egypt recording the highest increase of 12.1%.
HC Research said that the decision to raise the interest rate by 600 basis points by the Central Bank today is in line with the significant movement in the foreign currency exchange rate, which is determined by market mechanisms.
The research added that the higher interest rate will increase the weighted average cost of capital for the companies listed on the Egyptian stock exchange, which will lower their valuations. However, the impact will vary from sector to sector; for instance, the banking sector is among the main beneficiaries of the exchange rate hike.
It pointed out that the high-yield deposit certificates issued by public banks will compete with investing in the Egyptian stock market, and predicted that the expected economic improvement will have a positive impact on stocks after the market adjusts to all the economic variables.
The prices of 128 stocks fell, with Arab Cement suffering the biggest loss of 14.8%, while the prices of 37 stocks remained unchanged. The market capitalization rose to EGP 2trn.
Arab and foreign investors were net buyers by EGP 186.5m and EGP 104.5m, respectively, with ownership rates of 6.1% and 4.1%, while Egyptians were net sellers by EGP 290.9m, with an ownership rate of 89.8%.
Sarah Saada, a macroeconomics analyst at CI Capital Securities Brokerage, said that the long-term impact of the Central Bank’s decisions to raise the interest rate, float the exchange rate, and issue certificates with a 30% interest rate by banks will depend on the success of reducing inflation and stabilizing the exchange rate.
She added that these decisions will attract dollar inflows, especially from Egyptians’ investments abroad, and increase liquidity in Egypt.
Individuals made up 70.2% of the transactions, with Egyptian and Arab individuals being net buyers by EGP 134.1m and EGP 26.9m, respectively, while foreigners were also net buyers by EGP 6.9m.
Institutions accounted for 29.8% of the trades, with Arab and foreign institutions being net buyers by EGP 159.5m and EGP 97.6m, respectively, while local institutions were net sellers by EGP 425m.
