Market Report: Egyptian stocks slip back into red on banking credit downgrade

Moody's report on the banking sector is adding to corruption investigation woes, leading investors to retrench in safer stock

The EGX30 returned to the red on Wednesday, shedding 1.86 per cent to 4,986 points in subdued trade that analysts say will be a fact of life while corruption charges against business heads continue to spook investors.
The fall of the benchmark index was echoed by marginally smaller losses in the wider EGX70 and EGX100. Yesterday's 1.2 per cent rise of the main index followed two days of larger losses.
"The market will likely continue into the negative as long as businessmen are arrested because it raises risks for investors," said Mohamed Asarat, financial analyst with Cairo-based Pioneers Holding.
Of 181 listed stocks, 140 dipped in value and 34 gained, with industrial goods and services and healthcare and pharmaceuticals the only sectors edging into green.
Analysts say that corruption investigations are rocking the market and creating "a culture of anxiety", but yesterday's downgrade of Egypt's banking rating by Moody's -- which cited "elevated political uncertainty" -- has added to the gloom.
"The banking sector, led by Commercial International Bank (CIB), is suffering heavily from Moody's negative outlook on the industry," said Omar Darwish, equity sales trader at CI Brokerage Company.
Every listed banking firm finished in the red, with CIB losing 4.65 per cent reach its lowest close since 2009. Credit Agricole Egypt retreated 2.75 per cent and NSGB fell just under 1 per cent.
Financial firm Citadel Capital, whose head Ahmed Heikal was hit with a travel ban last week, ended the day almost unchanged, down 0.68 per cent, due to over-extended falls over the last few sessions.
Analysts say mild fluctuations in battered stock like Ezz Steel -- whose former chairman languishes in Cairo's Tora prison -- are explained by market dynamics rather than confidence in the company, as plummeting share prices manage to attract small numbers of bargain-hungry investors.
Ezz Steel closed down 4.55 per cent on Wednesday.
The day's biggest gainer was weeklong performer Kafr El-Zayat Pesticides, up 9.37 per cent as investors retrenched in safer stock.
"It's a classic 'shield share'," said Asarat. "This is a public company that won't be dragged into corruption cases so institutions like it and think it's safe to buy."
GB Auto was also up 4.8 per cent, amid rumours the carmaker sees Middle East turmoil as an opportunity to expand.
Total turnover for the four-hour session was LE442.4 million -- characterised as low -- with most of the bearish movement coming from foreign investors.
Egyptians and non-Arab investors made up roughly equal portions of the market, at around 47 per cent, although Egyptians were net-buyers to the tune of LE5.88 million.
As the market seemingly settles into a pattern of mild rises and larger dips, analysts are becoming vocal about the steps they think the Egyptian Financial Supervisory Authority (EFSA) and the government need to take.
Some believe a complete cleansing of institutional corruption risks the entire market, while others are pushing for targeted punishment.
"The government should state out loud that any punishment in corruption cases will be restricted to the individuals rather than the company," said Asarat. "That way any financial compensation should be taken from the shares of the person convicted -- not, for example, from the land that belongs to a company."
Asarat also believes the problem of low turnover and liquidity could be partially tackled with a return to normal trading practices.
"The EFSA should reintroduce same-day trades to free up the market," he said.