It was started for Egypt's stock market in 2018. By mid-April, the EGX30 was the top-performing index in the region, reaching an all-time high after making gains of 20 percent as investors bet a resurgent economy would translate into high corporate profits.
Yet by May, rising oil prices emerged as the first of a series of challenges that the market would face during the rest of the year. An emerging market sell-off, which began in early 2018, soon spread to Egypt and led to investor outflows across all asset classes. By the end of 2018, the EGX 30 finished the year 13.2 percent lower than it had started, marginally outperforming the MSCI Emerging Markets index, which slid 14.6 percent.
Ahmed Hafez, Head of MENA Research at Renaissance Capital, an investment bank focused on emerging markets, said Egypt's stock market or less mirrored the MSCI benchmark's slump.
"I would not say that Egypt was different in any way," he said in a telephone interview, arguing that the issues impacting emerging markets globally were the same as those impacting Egypt.
"We're talking about rising interest rates, trade tensions, global growth concerns, the stronger US dollar and there was, of course, the fourth quarter in US equities," said Hafez.
"From a country perspective, things were pretty solid. There was not much difference in the country, perhaps with the exception of some inflation. And accordingly, maybe a slower-than-expected cut in policy rates. "
Monsef Morsy, co-head of research at Egyptian brokerage CI Capital , said there were also factors that influenced Egyptian stocks.
"We had expected the Egyptian market to trade sideways in the second half of the year, which was up until November," he told Zawya in a telephone interview, noting that the market then plummeted. alter the way banks were taxed.
These changes, which are still to be ratified, would have been raised to 30 percent, had they been applied to 2018 earnings, EFG Hermes wrote in a November note.
"Morsy said, citing the performance of Commercial International Bank (CIB), the largest listed bank, which fell to 68.50 Egyptian pounds ($ 3.88) per share on December 6, from 82 pounds on November 18, according to Eikon data.
The stock market slump is the second largest government in the state-owned enterprises. In early 2017, it was said that it would be a stakes in 23 companies , a move aimed at both boosting government revenues and bolstering the stock market. The process was started with the listing of stakes in five companies, but this was shelved in October .
In terms of market performance, the worst-performing company last year was Arab Cotton Ginning , which split off its land holdings into a separate company in June and reduced the size of its share capital. Its shares fell 54.7 percent.
Ringing in changes
Global Telecom also terminates the year in its shareholding – Dutch telco Veon – had to withdraw an offer for the 42 percent of shares and Bangladesh also failed. Global's shares rebounded in January is news Veon That HAD offert Global Telecom $ 100 million funding lifeline and Would take the company private.
Many of the other poor performers in 2019 were real estate companies, which CI Capital's Morsy said suffered as capital out of the property market.
He said that most developers produced "decent numbers" in the future.
Harshjit Oza, vice-president of research at Shuaa Capital , said in his interview that many developers also focused on the end of the market.
Egypt's high interest rates – deposit rates closed the year at 16.75 percent, and lending rates at 17.75 percent – have hiked borrowing costs, both for construction firms and property buyers.
"There are still investors, but you can see that because of the high interest rate, the cost of maintaining the same kind of profitability and the same margins," said Oza, highlighting that developers often have to offer their services in the United States.
"Mortgages are less than 1 percent of GDP," said Oza.
Morsy said he expects the real estate sector to rebound
Rates of interest
Most analysts seem to believe in the rate of decline in the inflation rate, in the headline inflation rate dropped to 12 percent, from 15.7 percent in July and are now less than half of July 2017's record high of 33 percent. Uncertainty still remains to be reduced to 17.1 percent, falling to 11.4 percent in May only to then surge to 17.7 percent in October, before declining again.
CI Capital is forecasting a rate during the first half of the year. Morsy says it does not need to be substantial, just enough that the central bank has resumed monetary easing.
This case has been helped by reports that the flood of money flow of the country at the end of 2018 has not been stemmed, but reversed. Last week, Egypt's Central Bank reported that it had sold 1.16 trillion Egyptian pounds worth of five-year Treasury bonds – all of which were snapped up by foreign investors , according to Reuters.
Brokerage HC Securities & Investment is less bullish about the timing of potential interest rate cuts, even if it is upbeat on the prospects for Egypt's economy. While it believes that it can not be discounted, it does not expect this to happen until 2020 "given high global and local inflation levels and the expected subsidy cuts to the second half of this year", The company's research department said in response to questions from Zawya.
However, Renaissance Capital's Hafez said that it's just the opposite in the past, but it's still not in the market.
"For 2019, our global strategy and research for a better year for emerging markets, and accordingly for Egypt. The reason for this is we see much lower US bond yields. "
Hafez cited the US Federal Reserve's more "flexible" stance on monetary policy , and hopes that the US-China trade dispute could be solved as two of the reasons why investors may be more willing to take on risk many emerging market currencies now look cheap.
"Egypt is one of our over-weights from a strategy perspective. We do like the economic reform plans, we like the IMF-backed program, the government is pressing ahead, and we are positive about the country. It's trading at a forward P / E of 8.3x – that's 15 percent beyond its 9.7x long-term average, "added Hafez.
1. CITADEL CAPITAL: 175.97%
2. IBNSINA PHARMA: 24.39%
3. EGYPT KUWAIT HLD: 22.05%
1. ARAB COTTON GINNING: -54.70%
2. PORTO GROUP: -52.46%
3. GLOBAL TELECOM: -48.62%
(Reporting by Michael Fahy Editing by Matt Smith)
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