A report told Reuters that Egyptian stocks have recently lost a lot of their attractiveness to investors, and despite the decline in most of them by large proportions since the beginning of the year, they do not find a demand, amid severe scarcity of liquidity and the absence of promised government proposals.
In March 2018, the Egyptian government revealed its intention to offer minority stakes in 23 companies on the stock exchange as part of a program to raise eighty billion pounds (five billion dollars) within 24 to 30 months, about 21 months have passed and the government has offered only 4.5% of them. Shares of the Eastern Smoke Company earlier this year.
According to the Egyptian Stock Exchange data on its website, the trading volumes reached 46,254 billion trading papers since the beginning of the year until the end of last November, down from 60,771 billion in 2018 and about 77,946 billion in 2017.
The market capitalization decreased from about 825 billion pounds in 2017 to 750 billion pounds last year, then 705 billion pounds since the beginning of this year.
The Reuters report quoted analysts as saying that the local investor lost confidence in the stock market and the people in charge of the system in general, adding that the government had failed in the offering program, and some of them expressed their conviction that the market and people's money are "burning."
Reuters quoted Ihab Rashad, Vice Chairman of Mubasher Capital Holding for Financial Investments, as saying that "individuals are the controllers of the stock exchange, and they are those who have been saturated with losses in the past period, and therefore will not inject new liquidity," adding that the market needs new liquidity from new investors, which is What might happen when the government introduces new companies.
|The Central Bank of Egypt cut interest this year to stimulate economic growth, but the impact did not extend to the stock market (Al-Jazeera).|
From the beginning of the year until the end of last week, some of the largest shares witnessed significant declines, as Ezz Steel fell about 38%, Sidi Kerir Petrochemicals more than 44%, Palm Hills Development Company about 13%, Nasr City for Housing about 18%, and El Sewedy Electric about 36% , And Eastern smoke about 8%, according to Reuters data.
Ibrahim Al-Nimr, from Naeem Brokerage, said: "When the market is cheap, it is supposed to have a strong demand and willingness to buy, but we have in fact other than this."
He added that "the market is cheap because there is no desire to buy, low volumes and trading values reflect the investor's asceticism and his unwillingness to buy."
Aramco and interest rates
The Reuters report says that the Egyptian market also suffered from directing Arab investors liquidity towards Aramco's offering earlier this month, which witnessed a great momentum.
The rates of Arab trading declined according to the Egyptian Stock Exchange data from 10.34% of the total transactions in 2018 to 5.21% currently from the beginning of this year until the end of last November, and the number of companies registered in the market decreased from 222 in 2017 to about 218 companies currently.
After Egypt liberalized the exchange rate in November 2016, the central bank raised interest rates dramatically, which prompted the withdrawal of liquidity from the money market and from the markets in general, while banks collected hundreds of billions.
The central bank began cutting interest this year in an effort to stimulate economic growth, but the impact of that has not yet extended to the stock market clearly.
Analysts said that there is a severe lack of liquidity in the market, as it turned to real estate and savings certificates as a result of high interest rates.
They pointed out that the improvement of economic indicators must be reflected first on investment and job creation, in order for all this to be reflected on the stock exchange.
Economist Hani Tawfiq says that the economic indicators are not reflected in the Egyptian stock market because they are "deceptive indicators that indicate the existence of growth in GDP, but we must know the sources of growth coming from loans, because the size of our external and internal debt is very high."
He added, "I am concerned that the growth is financed by loans and from unsustainable sectors, not from the export, operation, production and manufacture. The funds were concentrated in the real estate sector and in the hands of these companies."
The Egyptian economy witnessed high growth rates during the last period with reduced budget deficit and initial surpluses, but this was accompanied by an increase in external debt of 17.3% to 108.7 billion dollars at the end of last June, equivalent to 36% of the total output in 2018-2019.