A television appearance by the president following gallbladder surgery stops the EGX from flat-lining
The EGX seems like its always looking for a reason to drop. If it's not the Dubai crisis in December, then its the Pioneers stock manipulation scandal. With those two hurdles receding, investors worked hard to find another reason to panic. Last month, it was concerns over President Hosni Mubarak's health.
During the last week of our reporting period, the EGX30 dropped 6.1% as news spread that Mubarak, 81, had his gallbladder removed in a German hospital. His doctors and the Egyptian government said his recovery was going well, but that wasn't enough to quell the anxiety of EGX investors.
Panic ensued, but it was curbed by the president's appearance on Nile News, a government-owned channel, where he was shown catching up on recent newspapers, chatting with doctors and making phone calls. The appearance helped the market rebound at the end of the last week, recouping half its losses from the three-day free fall.
Indices
The EGX30 retreated by 3.6% over our reporting period (February 20 to March 20) due to the health worries, but recovered after the president's appearance. Telecom Egypt (TE) contributed to the market's backpedal as well by posting lower than expected earnings. The company's revenues dipped 1.5% in the face of strong competition from the mobile market.
The index's leading stocks posted mixed results. The Commercial International Bank (CIB) grew 2.2% and Orascom Construction and Industries (OCI) regained momentum after a tough few weeks, ending the reporting period with 2.6% growth. OCI had previously published its performance numbers for 2009, which showed a 39.7% decrease in net profits.
Small and medium stocks on the EGX70 got hammered, dropping 13%. The drop was driven by individual investors who reacted more strongly than their institutional counterparts to the rumors surrounding the president's health. The subsequent appearances of President Mubarak dulled the blow a bit, but the index failed to recover like the EGX30.
A string of initial public offerings also impacted the index, leading to a dearth of liquidity. The sufferings were compounded by fines slapped on manipulated stocks, like those of Lift Slab. Those doubts hung over investors, who sold heavily when they thought other stocks in their portfolios might face the same fate.
Banking and Financial Services
The banking sector was the darling of the market last month, rising 2.8%. But the financial services sector didn't let pessimists down, dropping 3.9%
The performance statements of banks helped prevent the sharp drops gouging other sectors, with CIB's increases solidifying its position as one of the EGX's most resilient stocks.
Meanwhile, the Housing and Development Bank is planning to increase its capital from LE 670 million to LE 1.15 billion to penetrate the joint credit market. Such credit services are meant to be marketed to companies and authorities.
The Egyptian Financial Supervisory Authority agreed to a request by the Egyptian Gulf Bank to establish its new project, the Tharaa Fund. The fund's elementary capital will be LE 200 million, which will be directed to investments of daily financial returns.
The Arab Investment Bank issued a new savings certificate with accumulating returns. The certificate's duration is seven years and seven months, meant to guarantee diverse sources of liquidity over a long period of time. The certificates start at LE 1,000, have no maximum limit, and can be cashed at the end of the specified period with a 100% profit. The certificates also allow holders to gain credit at up to 90% of their total value.
Telecoms
The sector dropped 7.1% on news of TE's lackluster performance. Tough competition and a session of profit taking this month all helped ensure that telecom wasn't seeing last month's gains.
With the decline in the landline market, TE is looking at broadening its activities, including reinventing itself as a comprehensive communications group. The company is looking for ways to utilize over LE 10 billion in real estate assets, particularly for marketing.
The Central Bank of Egypt plans to launch its mobile banking service in the second half of 2010, although it has not yet finished being developed. It will be up to banks to contract with mobile providers for the service.
Meanwhile, Vodafone Egypt posted growth of 3.5%, in 2009, making LE 3.2 billion in profit on about LE 12 billion in revenues.
Construction and Real Estate
Construction fell by 2.3% and real estate by 7.2%. Construction suffered due to profit taking, but a steeper slide was prevented by optimism regarding OCI, whose share value increased from LE 230 to LE 282, based on a fair value assessment by Deutsche Bank.
Sixth of October Development and Investment increased its stock's capital and saw a period of profit taking while Al Shams for Housing and Development announced it had posted LE 10.6 million in net profits in 2009, compared to LE 10 million in 2008, a jump of 5.8%. That growth was spurred by the company's investments in Tourism Development Co. After purchasing LE 4.3 million worth of additional shares, Al Shams now owns 10% of the stock.
Meanwhile, the Egyptian Company for Engineering and Trade signed an agreement to build 320 villas and 88 buildings in New Cairo's Hyde Park compound, owned by DAMAC Properties.
The Macro View
The Ministry of Finance revealed that the public budget deficit jumped to LE 65 billion in the first seven months of the 2009/2010 fiscal year, compared to LE 39 billion for the same period last year.
The deficit represents 5.5% of the country's GDP, and the report says the jump is due to a slowdown in the domestic economy and lingering consequences of the global financial crisis on Egypt's public finances.
The report goes on to say that public spending fell 6.2% from July to January. Public revenues fell 26.2% from LE 147.1 billion to LE 108.6 billion.
By Maher Hamoud
© Business Today Egypt 2010
