HC Securities Executive expects further decline in stock prices

High volatility in markets does not foster a benign environment for IPOs, says Metwally

The Egyptian Exchange (EGX) has been suffering significant drops since the beginning of 2016. During the first month, the benchmark index EGX-30 declined 14.46% from 7,006 points to 5,992.7 points. The market capital also declined by 9% over January to EGP 391bn.
Daily News Egypt interviewed Deputy CEO at HC Securities and Investment Mohamed Metwally and discussed the current status of the Egyptian capital market and its forecasted future.
What are your predictions for the stock market's performance in light of global financial challenges?
We are likely to face a very challenging year in 2016 where the focus of investors will be a flight for safety, which means they will put their funds in fixed income US notes and bonds. We are currently witnessing a systemic exit from emerging markets equities driven by the slowdown in China and the collapse of oil prices, which prompted many investment houses to usher investors to exit.
The exit from Egypt's markets superseded the current exodus driven by its own domestic issues, but exogenous factors will continue to put downward pressure on domestic markets.
The few investment houses that blew the horns early this year will expedite the down slide in most emerging markets and will consequently push emerging markets equities into oversold territories. This is usually followed by the return of smart capital into the markets. I, therefore, anticipate some severe volatility in trading in 2016 but expect the year to end on a positive note. The more we see doom and gloom forecasts, the more likely markets will prove them wrong.
What is the biggest challenge the capital market in Egypt is facing?
The biggest challenges Egypt's equity markets are facing are the poor convertibility of the pound as a result of an exchange rate that does reflect equilibrium of supply and demand, the overhang of the ill-designed and highly unpopular taxes on capital gains, and the 12.5% to 13.5% risk and tax free rates offered by banks to investors.
How do you expect the deterioration of oil prices to continue to affect the stock market?
The collapse of oil prices will have a negative impact on the flow of capital from the Gulf to Egypt's local equity markets.
Will we see further decline in stock prices?
It is highly likely, yes, at least for the first half of the year, for the aforementioned reasons. I expect to see a turnaround in the market sometime in Q3 or Q4 of 2016.
We witnessed the initial public offering (IPO) of several companies in 2015. Do you expect the same for 2016 or will it be the year of acquisitions and mergers?
High volatility in the markets does not foster a benign environment for IPOs. Mergers and acquisitions will continue to be strong throughout 2016 because of the attractive opportunities for long term investors generated by the short term cloudy economic forecasts.