Ramadan, international market uncertainty and a host of other factors made a large impact on the Egyptian Exchange.
It's been another month of heavy losses for the Egyptian Exchange. In late July, a new cabinet was announced after a long wait. Clashes between protesters and the army and police spurred more concern about the fragility of Egypt's political stability. The market, also hurt by ongoing global financial turmoil, reacted poorly, leaving the EGX indices falling to further lows.
Between July 24 and August 18, the EGX 30 recorded a significant loss of 13.4%, settling at 4,747.17 points, down from 5,479 points. It was nearly the same for the EGX 70 and EGX 100, which recorded 12% and 13.3% losses to end the period at 566 and 826.99 points.
August 9 was particularly tough as market trading was halted for 30 minutes when the EGX 30 fell more than 5% in less than an hour. This heavy loss was backlash from the US debt-ceiling crisis and its repercussions on international markets on top of more bad news coming out of the eurozone. (Proposed recovery plans were discussed in the Franco-Germano leaders meeting in Berlin -- the plan included gradual expense cuts alongside a proposed tax on all financial markets.)
The Eilat attack and subsequent clashes between Israeli and Egyptian forces as well as renewed air strikes in Gaza also had a large impact on the market between August 15 and 18.
As usual during Ramadan, the EGX's overall trading value dropped significantly, reaching just over LE 6.5 billon, with a weekly trading average of LE 1.4 billion, down from nearly LE 9.5 billion the previous month.
Currency and inflation
There was no significant news in the internal economic arena regarding macro conditions. The Egyptian pound exchange rate fluctuated against the US dollar due to the turmoil following the US debt-ceiling crisis -- the rate started at LE 5.962 per US dollar and then dropped below LE 5.90 twice in less than a week. For more than three months before this, the Egyptian pound had hovered around 5.8996.
The foreign exchange rate fluctuations along with the economic slowdown gave the Central Bank of Egypt some breathing room during its meeting on July 21. Both factors will likely slow inflation, which allowed the bank to keep its rates the same.
Banking and finance
Although the six-month earnings releases for the sectors weren't all bad -- indicating mixed performances between the top-weighted stocks -- both sectors sustained heavy losses. The banking sector recorded a loss of 17% while the finance sector dropped 16%. Trading ended August 18 at 1,198 points for the banking sector and 486 points for the finance sector, down from 1,434.87 points and 578.59.
CIB and NSGB announced their earnings releases this month. CIB reported a 25% drop in its bottom line, while NSGB recorded an 8% jump compared to the same period last year. Both banks' shares plunged 11% and 16%.
Egypt-Kuwait Holding also recorded a 3.25% drop in its net profits for the six month period. But not even a bit of good news could reverse the trend and the company's stock fell 11%.
EFG Hermes' stock was an example of how fundamentals should be reflected in its stock price. The company's earnings release indicated a drop of 65.8% in net profits, due to market and internal economic conditions along with international market uncertainty, resulting in its stock plunging over 20% in four weeks.
Citadel Capital was a different story. The company recently convinced shareholders to approve a 30% capital increase, affirming its subsidiaries will still be able to operate without cash-flow problems. But even that news couldn't prevent losses last month, leading the stock to fall more than 35% between July 24 and August 18. The drop could have stemmed from Abraaj Capital's withdrawal from acquisition talks -- some traders had speculated they would make 100% profits if the deal went through at LE 8.50 per share.
Construction and building materials
The sector recorded a 10% drop to end trading at 1,402 points, down from 1,552.34, despite the positive news coming from Orascom Construction Industries (OCI) and Industries & Sinai Cement. OCI got approval for investment contributions from the IFC board worth $450 million (LE 2.69 billion), whereas Industries & Sinai Cement announced a cash dividend of LE 3 per share. Both stocks dropped, with OCI recording an 8% drop and Industries & Sinai Cement stocks falling 15%.
Ezz Steel also recorded a loss of 11% after recovering from nearly a 20% dip during the period over concerns the company would not be able to commit to listing rules and the delayed submission of financial statements for the year ending on December 2010. Ezz Steel submitted its financial statements for 2010, recording an impressive 84% growth in its profits, two weeks after the EGX had sent its final notice.
Real estate and tourism
The real estate sector lost 22% to close at 641 points, down from 824 points. The losses were on the back of bad news regarding the sector's biggest stocks, Palm Hills Development Company and Talaat Moustafa Group (TMG) Holding.
Palm Hills lost 28% throughout the reporting period due to several reasons, including its earnings release that showed a net loss of LE 81.40 and the still unresolved land-ownership dispute.
TMG Holding was in a similar situation, losing nearly 20% over the reporting period primarily because of its earnings release, which showed a 50% drop in net profits, and its involvement in a major land dispute case.
Telecoms
The sector's three stocks submitted mediocre earnings releases for 1H2011 performances. Overall the sector fell 19%, due mostly to Orascom Telecom (OT) and Mobinil, which reported drops of 19% and 24%.
Although OT recorded impressive growth in its net profits, that growth was due mainly to the capital gains from the Tunisiana-stock sale that was worth more than $800 million (LE 4.78 billion). This wasn't the only positive news for OT -- there was another announcement about the expected time frame to release the new telecom company's fair value as part of the VimpelCom merger. The announcement, along with information about the companies' asset split process, should come sometime within this month.
The release of Mobinil's earnings showed the company hadn't faired well in 1H2011, however most expected the losses to be far worse. The most important news regarding Mobinil was the rumor Naguib Sawiris was planning to sell his stock in the company for LE 160 per share (60% higher than the current market price). The rumor was denied by Mobinil, OT and Sawiris.
© Business Today Egypt 2011
