Egyptian Exchange opens, hit by giant wave of selling

The Egyptian Exchange (www.egyptse.com) opened today at 10:30am after nearly two months, and was immediately swamped with a flood of selling, which saw the index plunge nearly 10% and trading halted a few minutes after the exchange opened. The EGX 30 Benchmark opened the day at 5,646.50 but selling pressure that had built up before trading opened saw the index start to plummet down and buyers stayed well clear. Trading was halted for 30 minutes with the index at 5,085.63, according to the EGX website.
When the exchange reopened, the mood was a little better and the index slowly edged up to 5,155.33 over the next 50 minutes before drifting through to close at 5,142.71 after a further 2 hours, down 8.9% on the day.
Foreigners and then Gulf Cooperation Council members reportedly led the sell-off.
The exchange regulator had introduced new rules to halt trading if the exchange or any shares are too volatile. According to the rules, trading was halted for half an hour after a 5% change in value in the EGX100 index and as long as the EGX Chairman decrees if it falls by 10%. Similarly if a share price moves by 10% the price will be fixed until the end of the trading session and Associated Press reports that this happened to telco Mobinil, Orascom Construction, and EFG-Hermes investment bank, while around 30% of the trading was in Orascom Telecom which rallied a bit during the day but closed the session down 2.7%.
The bourse, which combines the former Cairo and Alexandria exchanges, had closed its doors on 27 January after falling 16% in a week during of political unrest which unseated former President Hosni Mubarak on 11 February. The reopening was delayed repeatedly because of strikes which kept clearing and settlement banks from reopening. Officials also wanted to prevent economic disruption. However, today is reportedly 2 days before a deadline which could have seen the EGX removed from the MSCI Emerging Markets Index, according to an Associated Press report. Other reports today state that the trading halts could still lead to discussions about downgrading the Egyptian market to the MSCI Frontier Markets index.
Some 46 companies were suspended from trading, after acting EGX Chairman Mohammed Abdel-Salam said they had not given full requested financial disclosure or had sent incomplete information about the shareholdings of targeted individuals. This is linked to ongoing investigations into share holdings and dealings of the Mubarak regime and associated businesspeople.
Egypt has also seen pressure on the Egyptian pound currency, trading at LE5.955=$1 by Wednesday evening. The country had seen its sovereign rating downgraded and the Government had reduced growth forecasts to 4% from 6% although some thought growth could be considerably less.
Selling pressure on the stock market is set to continue, but there are still many long-term bulls who believe that democracy and better governance could be good for the economy and are likely to start snapping up bargains when share prices fall a little further.

ETF allows creation orders

New York-based asset manager Van Eck Global announced today that it is again accepting creation orders for Market Vectors Egypt Index ETF (www.vaneck.com/funds/EGPT.aspx). These were suspended on 31 January after a strong inflow into the fund from investors who felt then that political change could be good in the long-term, although it still allowed investors to redeem units. The asset manager warned: “Market Vectors Egypt Index ETF will begin accepting new creation orders in accordance with the policies and procedures detailed in the Fund’s prospectus and Statement of Additional Information that include the right to suspend creation orders again if necessary. In an effort to facilitate an orderly resumption of trading, the Egyptian Exchange will follow procedures and measures, including circuit breakers on individual stock price changes, which may limit the Fund’s ability to track the Market Vectors Egypt Index.” Reuters reported that the ETF was down 7.5% today, bringing its total loss since 26 Jan to 18%.

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