Egypt's uprising should speed investment changes

With transparency up, and political uncertainty fading, the stock exchange chairman says now is the time for market innovations

In the wake of the uprising that toppled the government of President Hosni Mubarak, transparency has been increasing and political uncertainty has been decreasing, boosting investor confidence, stock exchange chairmanMohamed Abdel Salam told Reuters on Monday. He added thatEgypt's uprising should quicken the adoption of long-delayed trading innovations.
"There are indicators that show the market is improving because of the revolution. First, it reduced political risk. In the past, things were vague. If the president were to die, would his son take over, or would the army?" said Abdel Salam.
The uprising has also increased the influence of institutional investors on the stock exchange, he added.
"The market is becoming more stable, because institutional investors have begun to outnumber individual investors, who used to cause sharp market moves by their emotional trading."
Together, these indicate that now is a good time to introduce new tools on the exchange. Some of these tools will includeshort selling, exchange-traded funds, intraday trade and direct trading from abroad
"Many people have started trusting us now, and we are also trying to reduce transaction costs on foreign investors ... so I think we will now introduce short-selling and intraday trade in the first days of July," Abdel Salam said.
Egypt's previous government developed a short-selling system in 2008 and had hoped to launch it by the end of 2010, but analysts say that in its final years the government's political mandate to introduce reforms had been diminishing.
"Egypt's market is in need of new blood to be pumped in. It needs new products ... It is unarguable that this is a main way to increase liquidity and volume," Abdel Salam said.
The Egyptian exchange's benchmark index has lost 17 per cent of its value since the uprising's first protests erupted on January 25.
LINKS, DUAL LISTINGS
Among other delayed plans the exchange is now revisiting are exchange-traded funds (ETFs) and the introduction of a trading system that would enable foreign investors to place buy or sell orders for shares on Cairo's exchange directly.
Investors abroad would need to operate through a licensed broker in Egypt; but a proposed new system, the Financial Information Exchange (FIX), would allow orders to be placed and the details secured until the transaction was complete.
The FIX system should have been launched by mid-2010, starting with a link to London before connecting to other centers, such as ones in the Gulf.
Abdel Salam attributed the delay to technical difficulties faced by the London Stock Exchange and said he would meet with LSE officials on 20 June to try to sort these out.
The Egyptian Stock Exchange is also working out listing and disclosure rules for corporations to dual-list with exchange markets in Qatar, Dubai, Abu Dhabi, and Kuwait.
"There are Gulf companies that expressed a desire to enroll in the Egyptian stock exchange but I cannot disclose names now," he said.
In addition, the bourse is in talks with Egypt's Chamber of Metallurgical Industries to establish a fund to invest in gold.
"We want to introduce a new way to trade gold called ETC, standing for Exchange Traded Commodities; this should facilitate trading of raw gold, and Egypt is a strategic gold producer, so we should make use of it," Abdel Salam said.
Egypt has only one miner, Centamin Egypt, with significant local operations.
Abdel Salam said that timely disclosure of the revolution's impact on Egyptian companies' first-quarter results improved investors' perception of Egypt's credibility.