CAIRO: With the Egyptian Stock Exchange planning to introduce short selling and other trading tools to the market, some experts welcomed the idea while others seem somewhat skeptical.
“Short selling itself is a positive development, theoretically, it should increase liquidity and market volumes,” Karim Helal, board member at CI Capital Holding, told Daily News Egypt.
“It will be a welcomed tool by sophisticated international investors because they will then have a hedging tool that will allow them to build up bigger positions which they did not have before,” he added.
At a roundtable meeting, which included the Canadian-Egyptian Business Council on Monday, bourse Chairman Mohamed Abdel Salam said short selling along with intraday trading will begin early this July.
“I’m slightly surprised it’s introduced now, given the number of uncertainties in the political scene and the market,” said Angus Blair, head of research at Beltone Financial.
The exchange is also revisiting plans that will introduce exchange-traded funds (ETFs) and a new trading system that would enable foreign investors to place, buy, or sell orders for shares on the exchange directly, according to a statement from the stock exchange.
A proposed new system, the Financial Information Exchange (FIX), would allow orders to be placed and the details secured until the transaction was complete.
Helal said that despite the benefits, these new measures will not bring the market where it was before the January 25 Revolution, which lasted 18 days and put banks and businesses across the country at a standstill before forcing Hosni Mubarak out of power.
After losing around $12 billion on Jan. 26 and 27, the market remained closed for almost two months, risking its delisting from the emerging market index.
“It will not kick start the market to pre-revolution levels, but it will help. In my opinion, this should’ve started years ago,” he said.
According to Blair, the idea of short selling is used by hedge funds regularly as an instrument and is generally, but not always, adopted by short-term investors.
He said that when the idea is introduced, it could increase the liquidity of cash in the market.
Hedge funds use advanced investment to generate high returns and are utilized by more sophisticated private investors and businesses.
However, taken into consideration the current political caprice of the country, Blair added that the decision to introduce short selling at this time caught him by surprise — but it could have its advantages.
“It shows the sophistication and transparency of the Egyptian market compared to others in the Middle East and North Africa (MENA) region,” he said. “I’d like to think there is more positives than negatives, but I don’t think it will have a significant affect on the market now.”
Abdel Salam argues that it is indeed a good time to introduce new tools on the exchange. The uprising has increased the influence of institutional investors on the stock exchange, he told Reuters. "The market is becoming more stable, because institutional investors have begun to outnumber individual investors, who used to cause sharp market moves by their emotional trading."
In March, Abdel Salam, when asked about why the Egyptian market had not already introduced short selling, mentioned that the bourse was indeed ready for such regulations, which would be introduced soon “when the time is right.”
At the conference, Abdel Salam added that despite recent circumstances that have hit the country’s economy “development of the stock market after the January 25 Revolution and recent circumstances was substantial.”
“The depth and the strength of the market, despite the closure of about 55 days after the revolution, is exceptional,” he said.
Currently, the exchange is also working out listing and disclosure rules to enable corporations to list with the Egyptian exchange as well as with exchange markets in Qatar, Dubai, Abu Dhabi, and Kuwait.
In addition, the bourse is in talks with Egypt’s Chamber of Metallurgical Industries to establish a fund to invest in gold. "We want to introduce a new way to trade gold called ETC, standing for Exchange Traded Commodities; this should facilitate trading of raw gold, and Egypt is a strategic gold producer, so we should make use of it," Abdel Salam told Reuters. –Additional reporting by Reuters
