Despite the Central Bank of Egypt (CBE) imposing a 1% entrance fee on foreign currency portfolio investments through repatriation, foreigners were the net buyers of Egyptian shares on Sunday, driving the market to new historical peaks.
Analysts surveyed by Daily News Egypt said that the CBE decision will not likely harm foreign inflows in Egypt’s stock market.
On Sunday, foreigners were net buyers of EGP 15m, in a sign that they will extend building new positions in Egypt’s stocks.
“I think the decision to raise fees will not dent foreign investment in Egypt’s stock market, as the fees couldn’t be compared by higher yields that foreigners have from injecting their cash in our local shares,” said Ahmed Thabet, head of technical analysis at Al Jazira Capital, a brokerage firm.
On Sunday, EGX30 kept its rally alive, adding 0.9% to hit an all-time high at 14713.63 points.
“The valuation of Egyptian stock is still very cheap when compared to its peers in emerging markets,” Thabet added.
The CBE said in a presser last week that as of 3 December, a 1% “entrance fee” will be put in place for fresh foreign currency portfolio investments that enter via the repatriation mechanism.
“The application of the entrance fee comes one year post the liberalisation of the foreign exchange rate, at a time when the market has gained depth and momentum,” the bank added in a statement issued last Wednesday.
According to the statement, balances held prior to 3 December will not be affected.
The foreign investor will instruct the custodian to repatriate the foreign currency equivalent of their local currency total proceeds, through the CBE repatriation mechanism, the bank explained.
The custodian will verify the foreign investor originally accessed the Egyptian capital market through the repatriation mechanism, and will validate that the amount requested to be repatriated correctly represents the total proceeds of the foreign investors’ designated transactions, it added.
The repatriation mechanism was first introduced by the Central Bank of Egypt in 2013 in a bid to facilitate transferring profits for foreign investors.
The move could also mean that the CBE is bringing its repatriation policy in line with the IMF, which in one of its few criticisms of the CBE, called for repatriation restrictions to be removed.
As foreign exchange (FX) reserves continue to rise to their pre-2011 levels, the CBE has been phasing out FX restrictions.
Most recently, the CBE last week lifted all previously-imposed restrictions on US dollar deposits and withdrawals for importers of non-essential goods.