EGX Roller of 2019

CAIRO - 18 February 2020: The year 2019 has witnessed much ups and downs in Egypt in all aspects, especially in terms of the economy and the stocks market. Throughout the year, EGX lost around LE 41.44 billion, ending trading at LE 708.3 billion, compared to LE 749.71 billion recorded during the last session of 2018.

The benchmark EGX30 climbed 925.79 points during 2019, ending the year at 13,961.56 points, compared to 13,035.77 points by the end of 2018. Meanwhile, the small and mid-cap index EGX70 declined 159.36 points by the end of 2019, to close at 534.47 points, compared to 693.83 points at the last session of 2018. The broader index EGX100 dipped 329.11 points, to record 1,398.10 points, from 1,727.21 points by the end of the previous year. The equally weighted index EGX50 fell 182.28 points, recording 1,967.45 points by the end of December of 2019, down from 2,149.73 points in the prior year.

A year in review

Vice President of research department at Shuaa Securities - Egypt Ahmed Abdelnaby reviewed the 2019 market performance in a recent report, stating that after Egyptian equities had gotten off to a bright start in January and February, they struck mixed notes throughout the rest of the year. Egyptian equities pumped the breaks in March and April with shallow liquidity and margin calls throwing shade over the market, the report reads.

“In May, a stronger EGP helped pull stocks lower; and later, in June, margin calls added more pressure on the market. In August, the execution of Global Telecom Holding’s (GTHE) MTO by VEON Ltd. and an unclear picture on Qalaa Holdings’ (CCAP) subsidiary Egyptian Refining Co. (ERC) sent even higher waves of margin calls through the exchange. Investors dived deeper into the market in August, encouraged by CBE’s decision to cut interest rates by 150bps,” Abdelnaby noted.

He further added that in September, the EGX witnessed severe sell-offs sparked by street unrest, before calming down in October on wide expectations by economists that CBE’s Monetary Policy Committee would continue its easing policy. In November, almost all EGX sectors were down as a ‘sell on fact’-themed scene unfolded after the interest rate cut had become a fact. Finally, EGP appreciation was the headliner of December, breaking below the EGP16/USD level for the first time since early 2017.

Foreigners ended 2019 as net buyers, while Egyptian and Arab investors were net sellers, Abdelnaby stated, clarifying that the former ended 2019 as net buyers with LE 1.7 billion of net inflows, driven by institutions, while Egyptians were net sellers in 2019 with LE 798 million of net outflows, led by individuals, and Arabs closed out 2019 as net sellers with EGP927 million of net out-lows, topped by institutions.
Abdelnaby further noted that throughout most of the year, Egypt was the fourth cheapest market in the MENA region, trading at a discount to MSCI EM and MSCI FM, clarifying that Egypt’s equity market was the third top performer compared to its MENA peers in 2019. EGX30 gained 19% (+1% in December) in USD terms as it exhibited the best performance in many months during the year. In terms of valuation, Egypt ranked the fourth cheapest market among its MENA peers behind Oman, Dubai, and Kuwait by the end of 2019. Meanwhile, EGX30 is trading at a 32% discount to MSCI EM.

EGX in December

The benchmark EGX30 rose by 0.81% (112.1 points) to close at 13,961.56 points in December, compared to 14,849.46 points in November. The small and mid-cap index EGX70 jumped 0.23% (1.21 points), to close at 534.47 points, compared to 533.26 points at the last session of November. On the other hand, the broader index EGX100 dipped 0.28% (3.9 points), to record 1,398.10 points, down from 1,402 points by the end of the previous month. The equally weighted index EGX50 declined 2.20% (44.17 points) to end the month at 1,967.45 points, down from 2,011.62 points the prior month.

As per market capitalization, the EGX gained around LE3.2 billion in December, recording LE 708.3 billion, compared to LE 705.1 billion in November, which marks an increase of 0.45%.

The total value traded in December recorded LE 35.1 billion, while the total volume traded reached 3,534 million securities executed over 373 thousand transactions. In comparison, the total value traded in November recorded LE38 billion, while the total volume traded reached 2,705 million securities executed over 367 thousand transactions.

Stock trading accounted for 49.25% of the total value traded of the main market, while the remaining 50.75% were captured by bonds over the month.

Listed Stocks recorded a trading volume of 2.50 billion during the month, through 365,587 transactions, with a turnover of LE14.07 billion, compared to a trading volume of 2.38 billion shares, through 360,837 transactions, with a turnover of LE 11.71 billion in November.

Egyptians represented 64.1% of the value traded in listed stocks after excluding deals during the period. Foreigners accounted for 28.8%, while Arabs captured 7.0%. Foreigners were net buyers, with a net of EGP 581.0 million, and Arabs were net sellers, with a net of EGP236.9 million, after excluding deals in listed stocks.

Since the beginning of the year, Egyptians have represented 66.8% of the value traded in listed stocks after excluding deals, foreigners accounted for 24.5%, while Arabs captured 8.7%.

Foreigners were net sellers by EGP1,682.8 million, and Arabs were net sellers by EGP1,082.4 million, after excluding deals in listed stocks, since the beginning of 2019.

The fourth quarter of 2019

The benchmark EGX30 dipped 2.08% (296.19 points) to end the quarter at 13,961.56 points, compared to 14,257.75 points during the last session of September. The equally weighted index EGX50 lessened 3.21% (65.22 points), to end the month at 1,967.45 points, compared to 2,032.67 points the prior month.

On the other hand, the small and mid-cap index EGX70 jumped 2.71% (14.08 points), to close at 534.47 points, compared to 520.39 points by the end of September. The broader index EGX100 climbed 0.36% (5.03 points), to record 1,398.10 points, from 1,393.07 points by the end of September.

As for market capitalization, the EGX lost around LE7.1 billion during the last quarter of 2019, ending the quarter in LE708.3 billion, compared to LE715.4 billion in September, which marks a decrease of 1%.

The total value traded during the fourth quarter of 2019 recorded LE117.4 billion, while the total volume traded reached 11,788 million securities executed over 1,211 thousand transactions. In comparison, the total value traded during the prior quarter recorded LE158.9 billion, while the total volume traded reached 15,453 million securities executed over 1,281 thousand transactions.

Listed Stocks recorded a trading volume of 9.57 billion during the quarter, through 1.18 million transactions, with a turnover of LE40.37 billion, compared to a trading volume of 14.52 billion shares, traded through 1.2 million transactions, with a turnover of LE62.12 billion in the third quarter of 2019.

Stocks trading accounted for 40.53% of the total value traded of the main market, while the remaining 59.47% were captured by bonds over the quarter.

Egyptians represented 68.6% of the value traded in listed stocks after excluding deals during the period. Foreigners accounted for 23.9%, while Arabs captured 7.5%. Foreigners were net buyers, with a net of EGP100.3 million, and Arabs were net sellers, with a net of LE521.3 million, after excluding deals in listed stocks.
Since the beginning of the year, Egyptians represented 66.8% of the value traded in listed stocks after excluding deals, foreigners accounted for 24.5%, while Arabs captured 8.7%. Foreigners were net sellers by EGP1,682.8 million, and Arabs were net sellers by LE 1,082.4 million, after excluding deals in listed stocks.

Offerings in 2019

By the end of February 2019, Egypt floated a stake of Eastern Company on EGX, and the public and private offerings on the course were completed on March 6, with a total value of LE1.72 billion, as apart of its state offering program.

In 2018, Egypt delayed listing shares of state-owned companies on the Egyptian Exchange, such as the 4.5% stake of Eastern Company slated for October. The government attributed the delay to volatility in the global market, noting that if the shares had been floated, they would have failed to be covered at proper valuation.
In 2016, Egypt announced the launch of the government’s IPO program offering shares over three to five years in several state-owned companies in fields such as petroleum, services, chemicals and real estate.

As part of the economic reform program, the government targets offering 15-30% of stakes in state-owned companies on the stock exchange (EGX) to increase funding to Egyptian companies, maximize the benefit from state assets, and attract local and foreign capital flows to Egypt.

As per the offering of private companies, EGX witnessed floating of two companies in 2019, which are Fawry and Tenth of Ramadan for Pharmaceutical Industries and Diagnostic Reagents (Rameda).

EGX welcomed, on August 8, Fawry for Banking Technology and Electronic Payment, a newly listed company under the number 216, to its main market with a trading code “FWRY.CA”.

“A ringing of bell ceremony was held today in the presence of the upper management of Fawry and EGX,” EGX stated. EGX also revealed that the private offering was oversubscribed by 16 times and that the public offering was covered by 30 times.
The company offered 254.6 million of its shares, representing 36% of its total shares, at LE6.46 per share with a total value of LE 1.64 billion.

On December 11, trading commenced on Rameda (RMDA.CA) with a celebration of company number 217 on EGX’s main market platform. Public and private offering covered 376,60 million shares representing 48.99% of the company’s total shares with a price of LE4.66/share and with a total value of LE1,754,983,960; LE1.6 billion for private placement and LE87.7 million for public placement.

“The IPO resulted in allocating 18.83 million shares representing 5% of the total shares offered, while the private placement allocated 357,77 million shares representing 95%,” the EGX clarified, adding that the private placement was oversubscribed by 1.2 times and the IPO by 36 times.

Expectations for 2020

Investment Bank Pharos has expected the Egyptian stock market to reach levels of 16,000 points during 2020, marking an increase of 20%, with the support of several incentives, including inflation declines, more expected rate cuts, a series of successful offering and the trend of the US federal towards more expansionary monetary policy.

Beltone Investments has agreed with Pharos, recommending buying in the Egyptian market as a result of the macroeconomic recovery and continued monetary easing, and justifying this by expectations of lowering interest rates, a better view of the macroeconomic and support to the industrial sector and improved growth with a strong potential rise in stocks in the event of improved liquidity levels, noting that the government’s initial offering program is a catalyst for the market in 2020 because it boosts liquidity.

Investment bank Hermes has anticipated an increase in the relative weight of the Egyptian Stock Exchange during 2020, due to the fact that stock prices are close to pre-2016 levels, and the return on shares is on the path to growth, indicating that there is no reason why the Egyptian Stock Exchange is trading at a lower rate of 25% compared to the emerging markets and the Gulf. Branch manager of a brokerage firm Ahmed Mortada expects the Egyptian Stock Exchange to perform positively during 2020, for eight local and international reasons, including continuing recovery of the tourism sector.

Another reason is that “Egypt’s transformation into a regional energy hub raises expectations for energy price revaluation, which reflects positively on energy-intensive factories,” he notes. He also refers to the resumption of the government offerings program, as well as the announcement of the launch of new companies affiliated with the army, which would increase the depth of the market and attract new capital to the stock exchange.

In December, President Abdel Fatah al-Sisi affirmed that Armed Forces’ companies will be offered on EGX, stating that the stocks will be available for all Egyptians and not just the private sector.

The reasons also include the new central bank initiative for real estate financing for middle-income customers, for which about LE 50 billion has been allocated. Banks give it to customers with a 10% discount, and for a repayment period of up to 20 years, which is expected to reflect positively on real estate companies, especially those that set up small and medium units.

The Central Bank’s decision to raise the maximum percentage of the total loan installments from total monthly incomes to 50%, up from 35%, contributes to the revitalization of the consumer goods sector as well as the banks that expand personal lending, according to Mortada. He adds that CBE completes the cycle of monetary easing in the event that the pace of the trade war between China and the US subsides.

The last reason links to the Libyan army’s ability to resolve the internal conflict. According to Mortada, it is expected that this will affect the Egyptian economy positively through the travel of Egyptian manpower to Libya, as well as the high demand for Egyptian products in general, especially commodities, construction materials and construction.

Mortada predicts that EGX30 will target levels of 14,800 points during the first quarter, just in case trading on levels above 13,000 points. “The most prominent sectors expected to have positive performance in 2020 are tourism, petrochemical, construction, building materials, consumer goods and a number of real estate companies,” he notes.