It might be because of increased confidence in the country’s economic management, or it might be because of cheaper shares after two devaluations. Whatever the reason, there has been a buying frenzy on the Egyptian Stock Exchange since the end of October.
This has been seen in the jumps in the market’s main index the EGX30 in recent weeks. This closed at 12,770 points on Monday, its highest level since March 2020 and the outbreak of the Covid-19 pandemic. It is now almost 50 per cent higher than its lowest level this year in July, and it has gained 18 per cent since October’s devaluation.
According to calculations by the US financial service Bloomberg, the EGX30 has been the best-performing benchmark globally since last month’s devaluation, which came one day before Egypt said it had reached a financing deal with the International Monetary Fund (IMF) after almost eight months of negotiations.
It is hoped that the $3 billion deal will shore up the economy, which has been hard hit by the repercussions of the war in Ukraine. The drying up of the country’s foreign-currency resources, with portfolio investors fleeing the emerging markets in pursuit of dollars and the subsequent inflated imports bills, was a cause of concern that weighed on market transactions.
The IMF deal, which came on the back of Egypt’s liberalising its foreign-exchange markets, has been dubbed by observers an international vote of confidence in the local economy.
Two devaluations in one year have led the Egyptian pound to lose 56 per cent of its value against the dollar since March. Together with an increase in interest among Gulf investors for local firms, this has meant that investors have regained their confidence in the market, with early signs that recent outflows of foreign investment in local debt might be partly reversed.
Qataris are showing a great deal of interest in Egyptian companies. The Qatari Investment Authority is offering $1 billion to buy 20 per cent of Vodafone Egypt from Telecom Egypt, for example. The Qatari Sovereign Wealth Fund has said it wants to invest $2.5 billion in buying stakes held by the Egyptian government in a number of other entities.
This follows the Abu Dhabi Sovereign Wealth Fund buying more than $2 billion worth of Egyptian listed companies. The Saudi Wealth Fund has also set up a company to invest in Egyptian entities.
Local shares are trading at considerably lower prices when compared to other markets and to the Egyptian market itself over the last three years. The EGX30 average price/earnings ratio, indicating how many pounds investors invest in a share to get one pound of profit, is currently at 6.4, or “below the average of 9.2 times over the past decade and far from [US bank] Morgan Stanley’s MSCI Emerging Markets Index ratio of 11.2,” according to Bloomberg.
The market overall is in a mood of anticipation for new listings as the government prepares for a series of initial public offerings (IPOs). It set up a fund in September to offer stakes in state-owned companies to strategic investors and sovereign wealth funds ahead of listing them on the market.
The new listings would provide the market with much-needed liquidity.
Rami Al-Dokani, chairman of the Egyptian Stock Exchange, started a planned bourse roadshow to promote the coming IPOs with a visit to the UAE earlier this month. During the visit, he presented investment opportunities in the local market to representatives from 16 regional and international financial institutions, a statement said.
Al-Dokani stressed that the IMF deal would give a push to the market in Egypt and that the Central Bank of Egypt (CBE) was moving to ease import restrictions and help stabilise the economy.
The CBE’s new governor has been working to calm the business sector’s worries about the current dollar shortage and restrictions on imports that have led to billions of dollars of imported commodities stuck in the ports.
The revival in the bourse can also be partly attributed to the good news from a number of traded heavyweights.
The Commercial International Bank (CIB), one of the largest constituents of the EGX30, has offered its shareholders many reasons to rejoice, notably the return of banking maverick and CIB former chairman Hisham Ezz Al-Arab to the bank’s board.
Ezz Al-Arab was sacked by former CBE governor Tarek Amer two years ago. However, he has made a strong comeback to the banking sector first as an advisor to the new CBE governor and now as a board member of the bank he presided over for 19 years.
The CIB’s net income recorded a 16 per cent increase in the third quarter of 2022 as compared to the same period of 2021 to reach LE4 billion.
Other blue chips like Orascom Construction and Al-Sewidi Cables have posted good results through the last two weeks, with a 20 and 53 per cent jumps in their earnings, respectively, facts reflected in increased demand for their shares.
The rebound in the market has also been strong enough to offset the effects of two negative moves, the first a downgrade of Egypt’s creditworthiness by the US ratings agency Fitch Ratings and the second a report by the Japanese bank Nomura.
In the first week of November, Fitch Ratings downgraded its outlook for Egypt from stable to negative, saying weaker external liquidity and reduced prospects for access to bond markets had left it vulnerable to global shocks.
Last week, Nomura issued a report noting that in the light of some indicators, including foreign-exchange reserves, debt levels, and capital flows, Egypt had a high chance of facing a foreign-exchange market problem in the coming months.
*A version of this article appears in print in the 1 December, 2022 edition of Al-Ahram Weekly.