Silver lining

Al-Ahram Weekly Editorial
Wednesday 10 Aug 2022

Things are finally looking up at the Egyptian Stock Exchange (EGX), with the market staging a rally since its slump the first week of July.


On Sunday trading volume reached LE1.9 billion, a record figure considering there had been lows of LE300 million in recent months. This is fed by a heightened interest in the bourse with investors less worried about the pressures of inflation and wheat supplies.

The Purchasing Managers Index (PMI), a gauge measuring the investment sentiment among companies working in non-oil sectors, showed that 29 per cent of the sample reported rising input costs during the month, down from 45 per cent in June. The headline inflation also recorded its first, if still marginal, drop in six months in June, settling at 13.3 per cent.

Analysts believe the release of Ukrainian wheat shipments last week eased concerns about Egypt, the world’s largest wheat importer, is getting its principal food staple. However, for the recovery to be sustained the bourse has to deal with other chronic problems. The lack of liquidity and cumbersome regulations are some of the issues holding the EGX down.

The long-awaited government IPOs of state-owned companies can help. Sell-offs across the board of emerging markets since the outbreak of the Russian-Ukrainian war have resulted in the government delaying offering stakes of its own crown jewels in the local bourse. However, the minister of finance stated last week that the government hopes to sell stakes in ten public companies before the end of 2022.

The market should also capitalise on the growing Gulf interest in the listed shares, with Saudi Arabia’s sovereign wealth fund announcing last week it will set up a company to invest in Egyptian entities. In Early April, Abu Dhabi’s state holding company ADQ bought shares worth $1.85 billion in five publicly traded Egyptian firms.

Last week the Egyptian Financial Regulatory Authority (EFRA), the EGX regulator, said it is considering the possibility of increasing the minimum free-float requirement for a company to list in the local bourse to 10 per cent of total shares compared to the current five per cent as a means to increase liquidity.

The cabinet is also working on regulations that would open the door to issuing bonds to finance environmental, social, and governance projects (known as ESG bonds) which means new commodities and thus new liquidity.

On another front, local financial dailies revealed that officials from the bourse have been meeting with representatives of state institutions and fund managers to discuss increasing the latter’s investments in the market. The list of state bodies approached includes entities like the Egyptian Post, public insurance companies and the Endowments Authority.

Uncertainty about the value of the Egyptian pound is another factor discouraging investors, especially foreigners. The pound has depreciated by around 20 per cent since March, when the Central Bank of Egypt first let it slide unsupported against the dollar. On Monday it was selling at LE19.1 compared to LE15.75 in March. It is expected that the devaluation of the currency will top the IMF’s conditions to offer a new lifeline to Egypt. If this happens this would make the Stocks much cheaper and thus more attractive to foreigners.

But the problem with the EGX is also structural, with analysts calling for the need to revisit the regulatory environment. This may soon happen with the appointment of Mohamed Farid, head of EGX, as acting chairman of EFRA. EFRA is, after all, responsible for supervising and regulating non-banking financial markets and instruments, including the capital market, the exchange, all activities related to insurance services, mortgage finance, financial leasing, factoring, and securitisation.

Tackling these issues is essential if the EGX were receptive to new share offerings. Selling shares to the public is optimum to raise capital for any business if they want to expand their business, other modes of raising capital may be too expensive. Making sure companies do that is important for the growth of the economies.

*A version of this article appears in print in the 11 August, 2022 edition of Al-Ahram Weekly.

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