x Abu Dhabi, UAEFriday 19 January 2018

Egypt stock market 'reopens today'

The Egyptian government and the country's clearing house were moving ahead yesterday with a 850 million Egyptian pound support package for the stock exchange.

Investors sit by a soldier guarding the entrance to Egypt's stock exchange.
Investors sit by a soldier guarding the entrance to Egypt's stock exchange.

The Egyptian government and the country's stock market clearing house were moving ahead yesterday with an 850 million Egyptian pound (Dh524.9m) support package for the exchange as investors braced for steep losses in the first trading since the uprising began in late January.

Essam Sharaf, who was appointed prime minister this month, said the exchange would open today after more than seven weeks of suspended trading.

If it remained shut past tomorrow, it risked being excluded from the important MSCI emerging markets index, which is tracked by thousands of fund managers internationally and directs foreign investment into the country.

The finance ministry will advance 250m pounds to small brokerages that were badly hit by the shutdown of the exchange that began on January 27, according to an announcement yesterday.

An additional 600m pounds was being made available to brokerages from a special fund at Misr for Central Clearing, Depository & Registry (MCDR) to prevent them from being forced to sell shares in a declining market as their clients failed to meet margin calls, a situation that could worsen the losses at the exchange.

However, the country's regulator, the Egyptian Financial Supervisory Authority, and the stock exchange were still finalising the details of the support package last night as different groups discussed how to prevent severe losses.

The EGX 100 index slumped more than 20 per cent in the days leading up to the start of protests.

Sherif Raafat, a member of an official committee convened to determine what steps should be taken to reopen the exchange, said yesterday the decision for the government to provide support had been made to safeguard the private sector against the unintended consequences of the revolution.

"Some of these small brokers have not had any business in the last 40 days and no revenue," said Mr Raafat, who is chairman of Concord Corporate Finance and Securities and a former head of the stock exchanges in Cairo and Alexandria. "It was seen that in order to avoid the non-commercial risk brought about by this January 25 movement, to mitigate that risk, we should allow those companies who have given credit to their customers some access to funds."

Limits for trading were left at 10 per cent for stocks and 20 per cent for the index because the government felt it was "more practical to take the hit than prolong the pain", said Mr Raafat. "We need to allow the markets to settle."

Companies with strong ties to the former regime were expected to be hit the hardest in the first days of trading. It is estimated that about 22 per cent of companies listed on the stock market have links to the government or family of the ousted president Hosni Mubarak.

Since February 11, when Mr Mubarak stepped down, hundreds of investigations have begun into prominent businesses and deals done with his government. Some businessmen have already been arrested, including Ahmed Ezz, the founder of Ezz Steel who is accused of illegally setting up a monopoly in the steel market.

Until the onset of the civil unrest, Egypt was considered one of the hottest emerging markets, drawing foreign investment that helped to push the index 15 per cent higher last year.

The moves by the government to limit the shock of reopening the stock market comes after weeks of planning and internal debate among brokers, investors and officials. The stock market regulator announced this month it was easing rules on margin calls by brokerages to limit volatility when the bourse reopened.

"The government is clearly very scared … about a capital flight and the health of the country's smaller brokerages and those invested through them," said Shehzad Janab, the head of asset management and advisory at Daman Investments in Dubai.

Ayman Hamed, the managing director of Naeem Brokerage in Cairo, said the support from the government and MCDR was not a cure-all for the problems expected at the stock market in the coming weeks.

"This will not prevent the market from going down, but it will prevent the bankruptcy of small investors that were using margin facilities," he said, adding the market would stabilise over the next few months as new investors took advantage of the opportunity to bargain hunt.

Egyptian officials have delayed a promised reopening of the exchange several times since it was closed.