The initial indicators recorded by the Egyptian Exchange (EGX) during the first two weeks, as well as international reports’ expectations of a relative increase of the Egyptian pound have confirmed that the EGX came amongst the list of stock exchanges achieving the highest US dollar revenues in 2017.
There are three factors which put the EGX amongst the best stock exchanges worldwide. The factors are topped by the report published by Bloomberg last week. It said that financial data during the past 20 years revealed that emerging stock exchanges have occupied on average an annual rate of nine positions amongst the best 10 markets to achieve dollar revenues in two decades.
According to the report by Bloomberg, Egypt came amongst the best 10 markets achieving US dollar revenues during the past two decades. Egypt began occupying a place amongst these 10 positions in 1999. The flotation of the Egyptian pound in 2003 left its impact on Egypt’s position, as it occupied the third and fourth positions globally in 2004 and 2005. This reflects the importance of the flotation’s impact on the EGX.
The EGX returned to its position amongst the 10 best stock exchanges in 2012 and 2014.
Ahmed Abou Hussein, managing director of the brokerage department in Cairo Financial Holding (CF Holding), said that the EGX has witnessed a great transformation coinciding with the step to float the Egyptian pound during the last quarter of 2016.
He explained that this step was made more important by the fact that foreign institutions were exiting emerging market and being directed towards developed markets; this made the EGX stand out amongst emerging markets.
During 2016, the EGX attracted net foreign investments worth EGP 7bn at a time when the fourth quarter witnessed the exiting of nearly $23bn of foreign investments from emerging stock exchanges.
Abou Hussein noted that this discrepancy between Egypt and the majority of emerging markets has become clear during the last quarter of 2016, unlike the period that preceded it which witnessed an excellence of other emerging markets. This points out how the EGX is qualified in 2017 to attract larger foreign investments; hence, causing an increase in revenues.
These expectations are supported by the strong performance of the EGX during the first two weeks of 2017, recording 7.12% in revenues with the stability of the US dollar price.
This enables the EGX to avoid incurring losses similar tolast year’s collapse of the Egyptian pound. In 2016 the EGX recorded a 70% drop in revenues.
The second factor strengthening Egypt’s position amongst best emerging stock exchanges in terms of dollar performance is the expectation announced by Simon Baptist, regional director of Asia and the Middle East in the Economist Magazine. It stipulates the Egyptian pound increasing by 14% compared to the US dollar, classifying the Egyptian pound amongst the strongest 12 currencies in 2017.
This comes after the Egyptian pound’s0 flotation on 3 November, which resulted in the collapse of its value against the dollar from EGP 8.88 to EGP 19.
Mohamed Kotb, managing director of Mubasher Securities Portfolio Management, said that the performance indices of the stock exchange and the strong flows by foreign investors, in addition to the recommendations of improved local currency value are all factors that support the Egyptian market’s position amongst the best emerging markets to achieve dollar revenues in 2017, but on certain conditions.
Kotb said that the conditions include the policies of the government’s economic reform programme achieving results in reality, including an improvement of the flow of hard currency and recording economic growth. This can take place through activating tourism, direct and indirect foreign investments, increasing job opportunities; and hence, reducing the budget deficit as well as the deficit of the balance of payments.
He noted that achieving this step will leave a direct impact on the improvement of the pound’s price, in addition to creating incentives to continue the improvement in 2017.
He noted that previous experiences show the difficulty of putting a limit to the expectations of the EGX’s improvement in 2017, because some believe that the significant improvement during 2016 will diminish the chances of an improvement in 2017.
Kotb cited the performance of the EGX in 2003 and 2004, where it improved strongly in 2003 after the pound’s flotation, then surprised everybody with a continuation of the strong performance in 2004.
It is worth noting that the EGX occupied the second position amongst the most falling stock exchanges in 2016 by 27.65% based on the dollar value. On the other hand, it occupied the second position among stock exchanges achieving the highest revenues in the local currency.