Historical Increase (Aug 4, 2022) The ongoing decline in the stock market had led companies to be traded at very low prices, lower than their actual valuations. When funds began investing in the market, we saw a significant increase in stock prices. This increase is a big increase in one day. However, we are still far from the actual fair valuations of the companies.
Egyptian Market & the Obstacles The Egyptian market suffers from 3 different problems.
It has economic problems on a national level, economic problems due to global economic pressure, and there are structural problems in the Egyptian market.
One of the biggest problems in the structure of the Egyptian market is the lack of liquidity in several sectors. Investors in some sectors are more cautious rather than proactive in their investments, leading the market to falter.
We were seeing strong efforts from Dr. Mohamed Farid, former chairman of the EGX, in stimulating funds to invest in the market, which may have played a big role in the rise of the EGX.
While these efforts are expected to continue, external factors also have a large impact on the course of the market in Egypt.
EGX & the Pandemic The EGX started to recover from the pandemic but unlike other markets, the momentum was cut short. Other markets took advantage that operations in other investments were halted, and so investors opted to throw their money into the stock market.
Other countries took advantage of this by listing more companies on the stock markets. Unfortunately, Egypt hopped on this train too late.
Egyptian Market & Foreign Investors Foreign investors left the Egyptian market for a number of reasons:
1- In September 2021, the introduction of the capital gains tax and other taxes.
2- In September 2021, the Fed gave the first signal of interest rate hikes. This led to foreign investors exiting the market and going back to developed markets.
3- The war between Russia and Ukraine led to fear among investors, who opted to pull their investments out as a precautionary measure in just a number of weeks since the start of the war.
FRA: New President Dr. Mohamed Farid had always been very aware and worked very closely with the market and has high technical knowledge about the markets.
EGX & the Government The EGX does not need support from the government. The EGX is a tool to attract investors to pump cash into the country. As a matter of fact, the EGX is what supports the country’s economy.
Listing government-owned companies will give more variety for local and foreign investors to invest. In addition to that, it obliges these companies to function in a more transparent manner, given that their investors will need to know this information.
EGX & the Devaluation It had a positive effect on stock prices, because companies’ assets become cheaper for foreign investors, making them more attractive. Since devaluation means that cash loses its value, this drives people to invest in something. One of the more liquid investments is stocks.
EGX: Path to Recovery There needs to be better coordination in the decisions between the people in charge of different financial instruments and portfolios. The decisions made need to ensure that there is no serious side effect on other instruments and that no portfolios are prioritized over others.
The biggest challenge facing the EGX recovery is the economic situation. There is global economic pressure on commodity prices, inflation, as well as an increase in interest rates.