Egypt's stock market has undergone something of a rollercoaster ride since the start of the year.

At one point, it was the region’s star performer, posting strong gains until mid-April, before falling back as inflation rose on the back of subsidy cuts and higher oil prices. By the end of June, the market's gains had been pared back to 9 percent and at 29 July, the EGX 30 index stood just 1.2 percent higher for the year to date.

EFG Hermes, the Cairo-based investment bank, had tipped the country's market to outperform earlier this year, but Mohamad Al Hajj, vice president and head of MENA strategy for EFG Hermes, said there were a number of reasons why early gains had been reversed.

“Obviously, we were very positive on Egypt going into 2018, and I think at some point the market was up 23 percent year-to-date, so what you saw towards the end of April, May and June was a decent correction - the market fell by about 13 percent.

"That’s on the back of rising oil prices, which touched $80, and weaker sentiment towards EM (emerging market) equities on the back of trade war fears," he told Zawya in a telephone interview earlier this month.

“Obviously, with Egypt being an oil importer, that was a negative because it has implications on the inflation outlook and central bank monetary policy," Al Hajj added.

“The outlook for interest rate cuts in the short-to-medium term, over the next 12 months, is uncertain. It’s unlikely that we’ll see an interest rate cut coming out of Egypt in the current environment, given where oil prices are, what’s happening with the rest of emerging markets, the rising dollar etc.”

Despite this, he argued that EFG Hermes was "still positive on the outlook for Egyptian equities over the medium term as we continue to see strong earnings growth". Although the current quarter may not offer much in the way of returns for investors, he said that he expects a rebound in the fourth quarter than will likely continue into next year.

"The fundamental story of Egypt remains intact," Al Hajj said.

Global concerns

Ahmed Hafez, head of MENA Research for Renaissance Capital, argued that the recent decline is more a result of global investors pulling back from emerging market equities than any particular issues with Egypt, although a Reuters report on Saturday said that there has been a retreat by global investors from its debt markets.

The amount of Egyptian treasuries held by foreign owners fell to $17.5 billion by the end of June - down from $23.1 billion at the end of March.

"I think it's mainly the global picture and what's happening overall in emerging markets and the ongoing talk about trade wars, U.S. inflation and interest rates," Hafez told Zawya in a telephone interview.

"Egypt has still outperformed the MSCI Emerging Markets year-to-date in dollar terms, but it's very difficult to think of this outside the global context."

In a note on Egypt's economy published last week, Emirates NBD's MENA economist Daniel Richards said that the pick-up in growth rates in Egypt's economy has slowed in recent quarters as "authorities have pursued macroeconomic stability at the cost of a more rapid expansion in the economy". Growth rose to 5.4 percent in the three months to March, up from 5.3 percent in the previous quarter and 3.8 percent in the same period a year earlier, the note said. Emirates NBD is predicting overall growth of 5.3 percent for Egypt’s current financial year, which began this month, strengthening to 5.5 percent over the next financial year.

Hafez said that Renaissance Capital also remained positive on the fundamentals for Egypt's economy, despite inflationary pressures.

"Everything looks good from a pure local perspective, but there are always things happening in the global markets that you cannot ignore," Hafez said.

"The trade wars… are not really helping, I would say. With a lack of clarity on these issues, I think markets could continue to be volatile."

Monsef Morsy, sector head of financials at CI Capital’s research department, said that this volatility in emerging market equities, coupled with the fact that Egypt's central bank is unlikely to embark on any more monetary easing while inflation remains high, means that Egypt's equities market is likely "to trade sideways" during the second half of this year.

One potential catalyst for the Egyptian Exchange could be the potential sale of the first of a number of stake sales by the government in publicly-owned companies.

Stake sales

In March, former public enterprise minister Khaled Badawi told a conference in Dubai that Egypt was planning to sell minority stakes in publicly-owned companies - either through new listings or secondary sales of companies that were already listed - with a view to growing trading volumes on the exchange.

Last week, the government published a list of the first five companies (all of which are already listed) in which stakes will be sold. They are: Heliopolis Housing, Alexandria Mineral Oils, Abou Kir Fertilizers & Chemical Industries, Alexandria Container & Cargo Handling, and Eastern Tobacco.

The sales should take place in the second half of the year, and Morsy told Zawya in an email interview that this would "have a positive effect on the market in terms of trading and attracting new capital to the market".

Hafez said the government's budget for its current fiscal year has earmarked income of around 10 billion Egyptian pounds ($561.2 million) from stake sales.

"The total programme is for maybe 80 billion Egyptian pounds, and to be executed within 24-30 months, with stakes offered between 15-30 percent in a total of 23 companies," he said.

In terms of the best (and worst) performers on the Egyptian Index in the first half of the year, Qalaa Holdings posted the biggest gains in the period. Its shares climbed by 162 percent, which Morsy said was due partly to the fact that it had previously lagged the market, but that it was also "triggered by positive developments with regards to its key subsidiary, Egyptian Refining Company, which should begin trial operations in 2H18."



2. EZZ STEEL 41.17%






(Reporting by Michael Fahy; Editing by Shane McGinley)

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