By Farah Atia
The downward spiral continues for Egypt’s benchmark index, the EGX 30, ahead of protests slated for 30 June, pushing Egyptian investors to sell amid concerns of falling share prices. Meanwhile, foreign investors seem to be more optimistic about possible future gains, acting as the principle buyers of Egyptian stocks this month.
“At this time, there is still some potential to buy on weakness, which is what foreigners are doing,” said Alia Mamdouh, economist at CI Capital. According to Bloomberg market data, non-Arab foreigners have been net buyers of shares valued at about EGP 236m ($34m) in June. This is compared to last month, when the index rose 4.7% and investors were net buyers of less than EGP 30m of stocks.
Having lost 23% since last September, the EGX 30 entered bear market territory last week after the Morgan Stanley Capital Index (MSCI) said it would consider removing the nation from its basket of emerging market indices and adding it to its more risky frontier market index if the current shortage in foreign currency were to deteriorate. An index enters bear market when it loses 20% or more for a sustained period.
“The market is set to maintain its sideways movement and remain subject to political developments,” Mamdouh stated, adding that the benchmark index will continue to be under pressure until 30 June. “We see good opportunity in the market for stocks that are defensive. Some stocks rebound quickly when the market revives,” she said.
Foreigners are speculating on Egypt’s bear market stocks that have a high probability of declining in value, as the lure of possible above-average gains tempt purchases.
“When Egypt sees political stability which is a key condition for signing the IMF loan, this will positively reflect on the market,” Mamdouh added.
The EGX 30 fell by 1.03% Sunday, with Faisal Islamic Bank of Egypt, El Nasr Transformers (El Maco), Kafr El Zayat Pesticides, Atlas for Land Reclamation and Agricultural Processing, and Middle Egypt Flour Mills bearing the biggest losses. Pyramisa Hotels, Rowad Tourism (Al Rowad), Development & Engineering Consultants, Egyptian Satellites (NileSat) and Gharbia Islamic Housing Development meanwhile showed the highest gains.
The bulk of gainers on the market were real estate companies. According to Mamdouh, “The real estate sector is a hedge against inflation and devaluation; it is a safe investment. When there’s inflation, people invest in real estate.”