Although Egypt’s cabinet has been in power for more than two months now, they have been unable to solve Egypt’s unrelenting political tension, which has taken its toll on the economy. The ongoing trials and tribulations of the deposed president’s court case have also had a huge effect investor sentiment.
But it seems some have gotten used to the turmoil. The Egyptian Exchange’s three main indices recorded stable performances, with some even recording small gains at the beginning of the reporting period starting August 21. All that changed after thousands of protesters broke down a security wall in front of the Israeli embassy and then storming the building on the evening of September 8.
When authorities finally intervened, the streets became a war zone throughout the night and into the early hours of September 9. The subsequent call for stability from the government raised more concerns about security issues.
By the end of the period, the EGX 30 had dropped 8.1%, settling at 4,364.60 points from 4,747.17 points. It was more of the same for the EGX 70 and EGX 100, which recorded losses of 4.5% and 6.6% to end at 540.55 and 826.99 points.
Most of the losses were recorded in the last week of the period, coinciding with the embassy attack. But that wasn’t the only bad news.
Markets receded further on September 15 after Ezz Steel chief Ahmed Ezz was sentenced to 10 years in prison for corruption and manipulating regulations to acquire steel production licenses.
The court also handed down a joint fine worth LE 660 million to Ezz and the former director of the Industrial Development Authority Amr Assal in addition to withdrawing the expansion production licenses from Ezz Steel and three other steel manufacturers.
One news item that did help boost trader and investor confidence was the acquisition of Olympic Group by Swedish investment group Electrolux. The 97% stake was worth LE 2.4 billion and made for the first foreign investment inflow that has come through since January 25.
In terms of trading values, figures were lower than the previous month as anxiety further drained markets. Vacations after Ramadan, global market conditions and fear surrounding the 10th anniversary of September 11 were also pivotal in keeping trade volumes low as traders preferred to observe versus take part in the action.
Subsequently, trade volumes over the 17 trading sessions closed at LE 5.3 billion. Excluding the Olympic Group takeover deal, the figures were lower than the previous month by nearly 15%.
Currency and inflation
The Egyptian pound foreign exchange rate was stable, remaining between LE 5.95 and LE 5.98 per US dollar. On September 8, the dollar spiked, reaching LE 6, but closed the period from August 21-September 15 at LE 5.957.
On August 25, the Central Bank of Egypt (CBE) released a report about headline inflation and core inflation that said figures were "supported by favorable base effects from last year." Both inflation indicators dropped on annual bases during Ramadan. The CBE reported that core inflation was 6.98% during August, down from 8.71% a month earlier. The dip came riding on the back of the stability of commodities such as flour and sugar. Although vegetable and energy prices spiked in August, they did not have a large impact on core inflation.
Headline inflation was 8.49% for the month, down from 10.36% in July. The slowdown in the global economy as well as stability in foreign exchange rates helped control industrial input market prices.
Sectors and stocks
Sector performance mirrored the three major indices’ activities. The start saw all five sectors - real estate, building and construction materials, telecommunications and banking and finance - perform well. But that trend came to an end all too soon, with each recording their biggest losses on the period’s last trading day.
However, despite the ruling in the Ezz case, which pushed the sector index down 6%, construction and building materials wasn’t the biggest loser this time around. Instead, real estate took home the title, recording a 9% decline overall thanks to spreading fears over land ownership issues that remain up in the air. These fears only got worse after the court announced the Ezz penalty and sentence.
The banking and finance sectors were also hit hard by the court decision, as many of the production facilities of withdrawn steel production licenses were partially financed through consortium loans. Because ownership stocks were also partially owned by investment entities and funds, the fallout caused both the banking and finance sectors to record 4% and 7% losses.
The telecoms sector also recorded a 2% loss in spite of good news regarding the restructuring of Telecom Egypt and the expansion of Orascom Telecom in Pakistan. bt
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