Egyptian Exchange to start trading tomorrow (1 Mar)

The Egyptian Exchange (www.egyptse.com) is set to reopen tomorrow (1 March) after it closed on 27 Jan. in the popular uprising that saw President Hosni Mubarak resign on 11 Feb. It was due to open earlier, but delayed because strikes were devastating the banks on which it relies for clearing and settlement. Some selling is anticipated.

An announcement by Egypt’s Cabinet yesterday (27 Feb.) confirmed the opening and also that Ziad Bahaa El-Din, chairman of Egypt’s Financial Supervisory Authority, resigned yesterday. On 19 Feb. the FSA had announced that new trading rules will be in place to prevent exchange volatility. Daily share price movement will be limited to 1%, trading sessions are cut from 4 to 3 hours, and the cash reserve requirement for brokerages is cut from 10% to 5% of their capital.

According to a report on Bloomberg, market participants expect selling pressure. Walaa Hazem, who helps manage $1 billion in Egyptian equities and fixed income as vice president for asset management at HC Securities & Investment in Cairo, is quoted as saying: “The market should have opened much earlier. Locking people’s money is something very bad. This will put selling pressure on the market, in addition to the regional turmoil and the economic slowdown.”

Shares in the Middle East and worldwide continue under pressure as unrest sweeps across North Africa and the Middle East including Bahrain, Algeria, Yemen, Iraq, Oman, Morocco and Jordan. High oil prices may dampen hopes for a global economic recovery. According to Bloomberg today: “Saudi Arabia’s benchmark Tadawul All Share Index plunged 5% yesterday, to the lowest since June 6, on concern soaring oil prices, triggered by the Libyan clashes, may stall the global economic recovery. However, share indices moved slightly upwards in Sunday trading in Kuwait, Abu Dhabi and Jordan.

The Bloomberg GCC200 Index of companies in the Persian Gulf has tumbled 9.5% since Jan. 27, the last day shares in Egypt traded. Global depository receipts of Orascom Construction Industries also slid.”

Egypt’s unrest and resulting impact on tourism, business and investment could slow economic growth this fiscal year to about 4%, down from an earlier estimate of 6%, according to Finance Minister Samir Radwan.

However, many investors see there can be better outcomes from long-term stability and democracy. Global Depository Receipts of Orascom Construction Industries, Egypt’s biggest publicly traded builder, rose 3% in London on 25 Feb, so they have only fallen by 10% since 27 Jan. Orascom Telecom Holding SAE gained 0.9% in London since 27 Jan, says Bloomberg. It also quotes Walaa Hazem saying that some industries, including food and telecommunications, will be in a “better position” than others when the market opens. “People are still going to eat and talk on the telephone,” he said, singling out fixed-line operator Telecom Egypt. He says that key banks “won’t have good growth stories but they have strong balance sheets.”

Ahmed Ezz (chairman of Egypt’s biggest producer of steel) and Yasseen Mansour, (chief executive officer of Cairo-based real-estate developer Palm Hills Development SAE) who were both seen as close to former president Mubarak, are among executives referred by Public Prosecutors for trial on corruption charges. Both companies said their operations are run independently of the chairmen.

Bond yields are also higher than before the unrest, although there have been fluctuations. According to Bloomberg data, the yield on Egypt’s 5.75% dollar bond due 2020 has dropped 29 basis points to 6.92% percent after reaching a high of 7.21% on 31 January, compared to 5.16% at the start of the year. Yields on treasury bills have reached 2-year highs since 11Feb.

On 27 Feb, Egypt sold 2 billion pounds ($340 million) in 91-day bills and LE 3 bn in 273-day notes in an auction, falling short of its target of raising LE3.5 bn.

Bloomberg quotes Moustafa Assal, MD of Cairo-based Beltone Financial’s fixed income unit: “The high yields, especially on the longer-term notes, are a big concern because the Government is becoming unable to cover its intended issuances. They will not come down unless there’s political stability.”

Bloomberg also quotes Amro Halwani, senior equity sales trader at Shuaa Capital PSC in Saudi Arabia: “With no clear end to the geo-political turmoil in the region, local investors are erring on the side of caution. The regional uncertainty, with Libya this week’s reason to sell, has pushed fundamentals out of the picture. The surge in oil is an ongoing threat of a possible derailing in the global economic recovery, and gave investors a reason to move away from riskier assets.”

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