The stock market has a new chief today. Niveen Wahish gauges reactions to the change As of today, Khaled Serry Siam takes the helm as chairman of Egypt's stock market. He replaces outgoing chairman Maged Shawki who asked to end his tenure after five years in office. Siam was vice-chairman of the Egyptian Financial Supervisory Authority (EFSA) and previously served as vice-president of the Capital Markets Authority. With this background the new chief is fully aware of the challenges ahead. But one source, who preferred to remain anonymous, is worried that Siam's having been vice-chairman of EFSA would take independence away from the bourse. The source worries that Siam will consult EFSA at every step at a time when the stock market needs a focussed, swift and independent decision-maker. Observers say the announcement made earlier this week was not unexpected. "It was bound to happen sooner or later," says Mohamed El-Aasar, senior technical analyst at EFG-Hermes Holding, explaining that Shawki is one of the bourse's chairmen to have held the top post for the longest time. If the change had not happened now it would have happened in January, because these are the two times of the year when changes usually take place, Al-Aasar explained. Recent months have seen many calls for ousting Shawki on the pretext that market indices had been on a downward trend, particularly during the past three months, falling from around 7,600 points in April to around 5,900 points on Monday. But Reham El-Desoki, senior economist at Beltone Financial, the leading investment bank, said that was no reason for Shawki to leave the job. "With any major drop in share prices in the market, people ask for the head to be changed, as if he is responsible. It happened with him and with others." El-Desoki believes that Shawki was instrumental in developing the stock market. Nonetheless, she said change could positively affect sentiment, in that it could indicate that a fresh eye is looking at the market's problems and might bring a different approach that could attract interest on the part of investors. Egypt's stock exchange currently has a market capitalisation of $90 billion. In comparison, Dubai's stock exchange has a market capitalisation of around $190 billion. On Sunday, the first day of trading following the announcement, the EGX30 index rose by around 1.5 per cent while the EGX70 index rose by 4.5 per cent. But on Monday both indices dipped. The EGX30 was down 1.86 per cent and the EGX70 was down 0.15 per cent. El-Aasar explained that the rise was short lived. He said it indicated that those who believe they will gain something from the change are small speculators that Shawki was frustrating with stricter regulations. "That explains why the EGX70 rose higher than the EGX30 on Sunday." Shawki had delisted around 30 companies for failing to meet disclosure criteria earlier this year. "To foreigners, hedge funds and funds trading on the stronger companies listed on the EGX30 index, a change of the chairman would not make a difference. They would look at bigger changes in the government or presidency," said El-Aasar. The EGX30 is a market capitalisation weighted index. The EGX70 is a price index. The index tracks the performance of 70 companies in terms of liquidity and activity, after excluding the 30 most active constituent companies of the EGX30. El-Aasar added that what speculators do not realise is that the new chairman is as tough as the last. "If he smells any foul play, he will tackle it very early on; particularly since having been the vice-chairman of EFSA, he understands what goes on." Experts agree that in the coming period there should be more focus on improving transparency and the disclosure of companies. "It is not acceptable to equally treat companies that are committed and other companies that are not meeting the disclosure criteria," said El-Desoki. The anonymous source also agreed. He pointed out that 10 years ago there were around 1,500 companies listed and it was difficult to keep a close eye on all of them. Today there are around 200 and the stock exchange administration enjoys greater efficiency, so there should be more focus on solving the problems of small investors and on insider trading. There is also a need to increase the depth of the market by tackling problems related to small and medium size stocks, said El-Desoki, adding there is a need to activate the Nilex in terms of giving small and medium size companies incentives to list and trade. Nilex is a stock exchange catering for medium and small companies. El-Aasar drew attention to the need to move faster on introducing new instruments that have been delayed, such as short selling and same day trading. This will help increase volume, he said. There is huge potential to make Egypt a centre for the whole region, the anonymous source said. "It is a market that is respected and trusted by foreign investors in the region." He called for the adoption of standards that are homogenous across the region, to internationalise the Egyptian stock market. Among additions is the activation of exchange-traded funds. "The mechanism is in place, it only needs the will. This too will grow market volumes," the source said. El-Desoki agrees that the market needs to develop and adopt new instruments, but these instruments need to be used carefully by investors, otherwise they could backfire and have a negative impact on the market. That being the case, she believes what is needed most of all is more awareness, particularly by retail investors. El-Desoki suggested that the stock market cooperate with brokerage companies to increase the awareness of retail investors who represent more than 50 per cent of investors. "The more they are aware, the better off the market is. By virtue of their size and liquidity, their trading affects the market drastically. They blame everybody but themselves for any drop in market performance," she said.
