Small retail investors are once again driving share prices down. So has anything changed, wonders Sherine Abdel-Razek Frustrated by the continuing downturn, anxious retail investors gathered at the Cairo and Alexandria Stock Exchange (CASE) headquarters in Cairo's Downtown Al-Sherifein Street on Monday, a day that witnessed the CASE 30 index fall by a further 3.9 per cent. The three-months-long market correction shows no signs of coming to an end. Share prices have been sliding since early February, with only occasional short-lived rallies. Market capitalisation, which peaked at LE532 billion in January this year, has dropped by LE105 billion. But while the correction was expected after almost a year of strong growth no one anticipated it would last quite so long. The small investors who gathered outside the Case headquarters demanded the resignation of Maged Shawki, head of Cairo and Alexandria Stock Exchange. "Calling for Shawki's resignation betrays a lack of understanding of the way the bourse works," said one stock exchange employee who witnessed the demonstration and spoke on condition of anonymity. "We are in the midst of a prolonged correction movement and no one knows when it will end." The experience of Sherif Ibrahim, a civil engineer, is typical of the small investor. Tempted by the huge gains realised by the market in the previous 12 months he first invested in shares last November, buying the sky-rocketing stock of companies like EFG-Hermes, the Sixth of October Development Company, Arab Cotton Ginning and Telecom Egypt. Within three months Ibrahim's LE50,000 initial investment was worth LE63,000. Then came February. "I could not believe my eyes as I watched share values tumble almost in half. I contacted my broker who told me that it was a correction and I should not sell since the market will start moving up again. But it hasn't. What was worth LE63,000 is now worth LE 46,000." An estimated 250,000 retail investors joined the market in 2005, lured by the double digit yields fuelled by a series of successful IPOs and the strong financial results of listed companies that followed a 50 per cent reduction in taxes. And these small investors now account for 70 per cent of market turnover according to CASE figures. Since the slide began analysts have laid the blame at the door of Gulf investors pulling out of the market, small investors panic selling, and the correction that was bound to follow such a sustained period of growth. Now, though, some analysts cite a fourth factor -- increasing concern over stability. "When speaking with small investors who want to sell their holdings, many of them express concern over political instability in the country," said Bassim Arida, director of international sales at CIBC brokerages. Arida believes the current confrontation between the judges and the state, sectarian clashes in Alexandria and press reports about corruption have combined to undermine the confidence of small investors. "They feel that there is no stability in the long run and so are unwilling to enter the market for the long haul. They buy and sell in the same trading session and this results in increasing uncertainty in the market." Foreign institutional investors, on the other hand, see things differently. They view the publicity given to corruption scandals and more open criticism of the government as a positive sign as far as the political climate is concerned, says Arida. Niveen El-Tahry, chairperson of ABN Amro Asset Management, agrees, retaining a bullish optimism about market prospects. "It depends on how are you looking at it. If there is a lot of selling then there is also a lot of purchasing on the other side, and there is foreign confidence in the political and economic stability of Egypt." While analysts seem to be unsure how long the downturn will last El-Tahry is confident. "In 1997 we saw three years of continuous decline followed by the market's best ever performance. As a rule of thumb, the longer the downturn, the more stable the upswing."
