The market waits

Is no news good news? Sherine Abdel-Razek explains how the markets have answered government silence on economic policy
More than two weeks have passed since the international donor meeting in Sharm El-Sheikh; yet still the government has not announced changes to its economic policies. Aid and grants worth $10.3 billion are expected to shove the economy forward, but also give the government space to think afresh about how the economy is run. But so far, nothing doing.
Experts want the government to move faster. Amid speculation about the kind of commitments the International Monetary Fund (IMF) may ask of Egypt, they want some indication of moves to come.
Egypt, for example, has requested a Compensatory Financing Facility (CFF) from the IMF. While the CFF, a short-term loan (12-18 months), is usually granted unconditionally, the fund sometimes sets preconditions. Egypt, in return for a CFF, may be expected to devalue the pound, or to adopt a more flexible exchange rate regime. And analysts want to know.
There have been hints. Some officials have suggested that a wider band for movement around the central exchange rate may be introduced. On the other hand Medhat Hassanein, minister of finance, last week ruled out any immediate moves as current circumstances were "volatile" and "did not reflect true supply and demand." Central Bank Governor Mahmoud Abul-Oyoun was also cautious, saying that there would be some changes, though qualifying this by arguing that continuous incremental devaluations were leading people to view dollars as an investment, thereby further pressuring the pound. The pound recently fell to LE5.4 to the dollar on the black market as the hard currency needs of hajj pilgrims increased demand.
Not everyone thinks drastic action is needed, though. Caren Gaboutchian, economist at ING Baring, a merchant bank, was quoted by Reuters as saying that he believes there has been a strong speculative element in the pound's weakness and that its price will gradually shore up with positive news and central bank dollar sales keeping the market liquid.
Share trading has reflected the mood of anticipation. The week ending 20 February (shortened for the Eid holiday) witnessed LE544 million- worth of transactions, compared with LE314 million- worth the week before. But less risky bonds dominated activity, accounting for 85 per cent of trades. Overall, performance was relatively buoyant: out of 144 listed companies, 67 gained in price, while 51 lost ground. The remainder stayed static.
MobiNil and Commercial International Bank were the market's best performers, their recent better-than-expected results continuing to invigorate their share prices. They both gained, closing at LE31.95 and LE29.27 respectively.
MobiNil is also benefiting from foreign purchase of its stock; previous declines had made it an attractive investment option. The share is considered one of the cheapest international telecommunication shares, with strong growth potential. Foreign transactions in general were high during the week, accounting for about 20 per cent of market turnover. Net, they were in the sell category.
Banks were also the objects of attention. Renewed rumours that foreign investors are interested in buying Egyptian American Bank (EAB) have pushed the bank's shares to LE33.81. Last year, EAB announced that its shareholders were offering their stakes in the bank for sale and that talks had been held with British- based Standard Chartered. The bank announced, however, in December, that Standard Chartered had lost interest.
The countdown to the release of some annual results has thrown other companies into the limelight. Orascom Construction Industries (OCI) fared well amid investors' hopes of solid annual results, due in March. Most of the construction group's trading is in foreign currencies: it will, therefore, benefit from the recurring devaluation of the pound. Moreover, company officials point out that they have work contracts to cover them for about 18 months.
There have been developments away from the trading floor, too. In future, investors will find the auguries even easier to read. The disclosure department of Cairo and Alexandria Stock Exchange (CASE) has prepared an Earnings Calendar for the fiscal year 2002. The calendar provides the expected quarterly and annual dates for the release of listed companies' financial statements. Forty-one of the most actively traded companies are included this year, compared with 25 last year.
The Central Bank of Egypt (CBE) released the foreign currency reserve holdings balance for the month of November 2001. The figures showed an increase of $181 million over the October 2001 figures, for a total of $14.519 billion.
Recommend this page
© Copyright Al-Ahram Weekly. All rights reserved
Send a letter to the Editor