Egypt’s stock market turns red after “IMF-leaks” come out!

The International Monetary Fund (IMF) just released yesterday a press release, a staff report, and a statement in relation to Egypt’s request for extended arrangement. Although this is customary, the details of the publication made it look as a new edition of WikiLeaks or what we call “IMF-leaks”!
By Markets Chimp

1/19/17 4:58 PM

It looked as if the Egyptian stock market was waiting for just about any negative news to undergo a correction move. The market as measured by its key benchmark EGX30 has been up some 56.1% from 2 November 2016 through yesterday (18 January 2017) in Egyptian pound terms. Also yesterday, news circulated in the market about a new report published by the International Monetary Fund (IMF) detailing what went on behind closed doors surrounding the time of the EGP devaluation. This in and of itself was like the needle that punctured the balloon that has been inflated for the past 11 weeks.

EGX30 hit its all-time high of 13,544.40 intraday during yesterday’s trading session, before succumbing to the news today. EGX30–along with the Egyptian market’s other benchmarks–fell today by 3.74% with the close matching the last (indicating stocks were trading at their day lows by end of session—a bearish sign). Using equal weights for the index’s 30 components, the index would be down 5.07%! With 28 stocks down on the day, only 1 stock was up (Egypt’s tobacco monopoly and foreign investors’ favorite Eastern Company, up 2.81% on the day) and 1 was unchanged (one of the recent IPOs Edita Food Industries).

 

In US dollar terms, which is what global investors really care about, EGX30 is down 29.4% from 2 November 2016 through 19 January 2017 versus a positive performance of 50.2% in EGP terms. Had global investors stepped in on 3 November 2016 (after the EGP devaluation announcement), they would be up only 5.9% in USD terms (versus 45.4% in EGP terms).

Ezz Steel (down 9.5%) was the worst performing of all 30 constituents but contributed only 8.8% to the index’s total negative performance for the day, behind Commercial International Bank (CIB) (down 2.8% with 28.3% contribution) and EFG Hermes Holding (down 5.1% with 11.1% contribution). In terms of sectors, Basic Resources (down 9.4%), Travel & Leisure (down 7.5%), and Financials (ex-Banks) (down 5.1%) were the three worst performers. Only Health Care & Pharma (down 0.2%) managed to eke out the smallest loss.

Investors in the Egyptian stock market are now counting their blessings; should they average down their cost assuming this is just a bump in the road or should they cash out and call it a day happy enough with the gains generated so far? As we mentioned before in one of our articles, January and December are the best months of the year, so if investors were to expect better performance in the coming couple of months, they would be going against the historical trend. I personally think the market will have to correct further before it resumes its long term uptrend, but investors need not forget that the market is not doing as well in USD terms, so they should not expect foreign investors to simply jump in on such sell-off because the currency risk is still paramount. 

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