x Abu Dhabi, UAEWednesday 17 January 2018

A rush to buy Egyptian bargains as exchange opens

Investors will be looking for potential bargains as the Egyptian stock market opens for its first full week of trading since the revolution.

Investors have returned to the floor of the Egyptian stock market. Those looking for cheap stocks are expected to have a busy week.
Investors have returned to the floor of the Egyptian stock market. Those looking for cheap stocks are expected to have a busy week.

Bargain hunters are expected to be busy in the Egyptian stock market this week as undervalued shares are overriding uncertainty about the country's political situation.

Modest gains were a surprise last week after trading resumed on the Egyptian Exchange for the first time in 38 business days.

The benchmark EGX 100 Index ended the week 0.9 per cent higher as foreign investors swept in on shares available at 10 per cent below their average trading value.

In two days of tumultuous trading, about 76 per cent of the activity was accounted for by foreigners, and only 10 per cent of that was selling.

Retail investors accounted for 15 per cent of trading, with more buying than selling.

That signals confidence from foreign traders as well as locals.

"The result has been tremendously surprising on the positive side, not only by how quickly this market has found its legs again but especially the high speed at which things are progressing," said Baldwin Berges, the managing partner at Silk Invest in London.

At the end of Thursday's trading, 108 stocks had risen and only 58 had fallen.

"There's more of this kind of talk now about Egypt being undervalued after the last session," said Fadi al Said, a senior fund manager at ING Investment Management.

Investors are scouring the market for defensive stocks that have low price-to-earnings (P/E) ratios, one method of determining how expensive a stock is relative to its peers.

Among Egypt's biggest companies, Telecom Egypt, trading at 7.51 times earnings, and Elsewedy Electric, a cable manufacturer that is trading at 8.74 times earnings, have the lowest P/E ratios.

The telecommunications sector was a clear winner last week as shares of Mobinil and Telecom Egypt advanced 10 per cent and 9.9 per cent, respectively.

As was anticipated, companies with connections to the former regime fared badly. Ezz Steel, which was initially barred from trading for not disclosing assets and shareholders under investigation, slumped 9.9 per cent.

The investment bank EFG-Hermes and the developer Talaat Moustafa Group, companies that are also reported to have links with the former president, Hosni Mubarak, and his family, dropped nearly 10 per cent.

Fund managers have said investors will be trying to identify winners and losers as Egypt rebuilds its economy.

Sebastien Henin, a portfolio manager at The National Investor in Abu Dhabi, said he expected better volumes on the stock market and would "definitely be buying".

"Blue chip stocks are going to be very resilient after a few days. It won't be a blood bath," he said. "But we still don't have visibility and investors love visibility."

The Egyptian government took steps to support the market including appointing a new chairman of the exchange, instituting a shorter trading day for the first week and suspending trading if the market fell sharply. The government also stepped in with a 318 million Egyptian pound (Dh195.5m) support package to limit the shock of a dramatic fall in stock prices at the opening.

"I don't think that a couple of million pounds affected the market in terms of valuation because, compared to the size of the package, the market is large," said Sven Richter, the managing director of frontier markets at Renaissance Asset Managers in London. "Our clients will definitely exploit the opportunity of cheaper stocks and, like any market, a natural path of discovery will take place and falls and rises will happen."

The government's support package did little to keep the army of sellers at bay initially.

The EGX 100 shed 10 per cent of its value within seconds of opening for the first day of trading on Wednesday. The market pared some losses when it reopened for a second time that day after a brief suspension of trading and closed 8.9 per cent lower at 5,142.71.