Market Report: Bourse takes hardest hit since US downgrade

Major Egyptian stocks fall 4.75 per cent in Tuesday's trade as investors panic over the prospects of a global economic meltdown

Egypt's stocks have seen a tumultuous third day, taking their severest hit since the US debt downgrade on Friday.
The Bourse's main indicator, the EGX30, shed 4.75 per cent to reach 4,478 points on what analysts viewed as unreasonable panic over the prospects of a global economic meltdown.
"Investors' reaction was extremely exaggerated, completely ignoring the fundamentals of the Egyptian stock market," explains Walaa Hazem, asset manager at HC Securities.
The plummet in stocks was a result of market uncertainty causing investors to panic, fleeing the market and converting their shares into less risky assets or cash, says Hazem.
The broader EGX70 index also dipped 5.33 per cent.
"During such panic sprees, its either investors who dump their portfolios blindly to retain cash or financial institutions who take over and sell collateralised portfolios to cover clients' debts," says Mostafa Badra, a capital markets expert.
The EGX30 fell 5 per cent less than an hour after opening for trade, crossing the downward limit set by the Egyptian Financial Supervisorty Authority (EFSA) and prompting a temporary suspension of operations.
Trading resumed half an hour later, only to see the decline sharpen and the index bottom out at 4,418 points -- a decline of near 6 per cent. Stocks then began a gradual rebound, diluting losses to reach 4,478 points by close of play.
"This was a natural rebound for an index that has been losing value for three days," says Ashraf Abdel Aziz, head of institutions sales at Arabia Online Securities.
EGX30 has shed a total of 320 points since the beginning of this week, declining by 4 per cent on Sunday and 2 per cent on Monday.
"The selling spree will continue until buyers with vision show up to balance the market," Hazem adds.
Foreign sales drove the plunge; comprising 27 per cent of the total trading volume of LE398 million, they were net-sellers of around LE50 million.
Global stocks have fallen since yesterday with fears mounting of an international economic crisis similar to that of 2008, spurred by the US credit downgrade and Europe's debt crisis.
London's FTSE 100 dipped 3.22 per cent and Germany's DAX lost 3.18 per cent on Tuesday. Across the Atlantic the plunge was even steeper, with the Dow Jones closing Monday on a 5.55 per cent decline.
Other Middle Eastern exchanges were also affected but Egypt's saw the largest decline.
All market sectors took a hit in today's three-hour session, with 173 shares finishing in the red and only six posting gains.
Leading shares all posted historical intraday drops, Orascom Construction Industries dipping 5.66 per cent and Orascom Telecom losing 6.78 per cent.
Shares in El-Ezz Al-Dekhela, the second largest steel manufacturer in the MENA region, plummeted by 9.77 per cent.
Egypt's stock exchange has been battered this year as a popular uprising against the regime of former President Hosni Mubarak led to a disruption in economic and political activity.
The Bourse's main index has shed 37 per cent since the start of 2011, approaching the three-year low of 3,528 points it reached in early 2009.
Experts say the market has already taken serious hits from local turmoil and may buckle under the additional pressure.
"International problems are now taking their toll on the market but we are not ready," explains Hisham Tawfiq, managing director of Naeem Holding.
Tawfiq believes Egypt's rulers should undertake measures to soothe the market, with a focus on the political arena.
"The most important role the government should undertake is to give assurances of the country's political future so investors would feel confident in the market," Tawfiw says.
Examples he gives of such political "assurances" include announcing plans for upcoming parliamentary elections and declaring the basis on which the constitution will be written.