Good news from abroad

Reports by international financial institutions galvanised interest in market blue chips, reports Sherine Abdel-Razek
As summer winds down, the market managed to maintain its three-week-long upward trend during the week ending 24 August. While the revival was sparked by changes in the local arena, the most important of which was the modification of the forex regime, the impetus last week came from abroad.
Reactions to generally favourable reports on the Egyptian economy and some listed companies by international financial institutions appear to be behind the market's improving performance. This trend was registered by the Capital Market Authority index which gained a marginal 0.81 points to close at 594.96.
Fitch, the international rating agency, and one of five rating agencies authorised by the Egyptian government to assess the economy and bonds-issuing companies, has maintained Egypt's foreign currency rating, at BBB+.
This affirmation is believed to reflect Egypt's improving external debt position. "Egypt's public external debt is falling, and although total net external debt has risen since 1997 due to the decline in foreign reserves and banks have run down their external assets, it remains close to the average for sovereigns," said a Fitch's statement.
But not all the news delivered by Fitch's was good news. Having downgraded its rating on the local currency, the agency explained this move as being due to weakened domestic debt dynamics following investment overruns and a higher budget deficit which the government needs to take more action to bring under control. It also pointed out that Egypt's gross public debt, which is estimated at 95 per cent of GDP for fiscal year 2000/1 is more than twice that of similarly rated countries. Although it fell sharply 1998/9, it has since stabilised and is expected to rise this year to just under 100 per cent of GDP.
However, Fitch's did concede that some actions have been taken to rein in investment spending and the budget deficit. "Investment spending is now under better control and arrears are being cleared. The budget deficit is falling gradually and may be substantially lower than the reported state budget deficit of 4.4 per cent of GDP in 2000/1."
Having $500 million-worth of eurobonds now traded on international markets, Egypt has become very sensitive to any changes in its credit ratings.
The market's leading sector, banking, received a welcome pat on the back from Moody's Investors Service, which said that the outlook was stable for its ratings of Egypt's public and private sector banks. However, it added that the slowdown in the economy was affecting Egyptian banks' earning power, credit growth as well as increasing loan delinquency.
"Right now, private sector banks have an average financial strength rating. The public sector banks are weaker," Moody's said in its yearly report on the nation's banking industry.
On the micro level, Morgan Stanley's lowering the weight of Orascom Telecom on its MSCI index proved a blow to the telecom behemoth. OT's weight in the index dropped to three per cent from 9.3 per cent after Morgan Stanley recalculated OT's free float percentage to exclude the holdings of two investment funds that together own 31 per cent of the company. Companies are represented in the index according to the percentage of their capital that is free floated. Currently 14 Egyptian companies are listed in the index.
Al-Ahram Beverages was in the limelight again during the week starting with the British investment banking group ING Barings reducing its recommendation for the company to "buy" from "strong buy," reassessing its fair value to $11.40 per global depository receipt from its previous assessment of $17.23.
But ABC had some good news to announce last week. The beverages company signed a distribution agreement with the Saudi Dairy and Food Company (SADEFCO) to sell beverages in the Gulf.
An ABC press release said that it would sell its flavoured and unflavoured malt beverages throughout Saudi Arabia, Kuwait, Bahrain and Qatar.
"This comprehensive agreement, which supplants ABC's previous agreements with individual distributors in each country, is a significant boost to ABC's export business," the ABC statement said.
"The scale offered by SADAFCO will give ABC a much stronger presence in the Gulf region, particularly in the critical Saudi market, which boasts the highest per capita consumption of flavored and unflavoured malt beverages in the world at nearly three litres per person per year," the statement added.
In other market news, the most active share last week in terms of value of traded shares, was that of the Media Production City. MPC cornered LE26 million-worth of transactions during the week which witnessed the LE334 million-worth of transactions.
This was totally unexpected as the company's investors were disappointed due to a decline in the firm's first-half results. MPC posted net profits of LE19.41 million in the first-half of 2001, representing a 5 per cent decline from the LE20.64 million in the corresponding period of the previous year.
The second most active share was Helwan Cement. In fact, many companies in this sector saw their shares gain value on most of the week's trading days. Their success in making the list of most popular shares during the week is attributed to the low prices for the shares of the sector's big caps.
Investors attraction to Helwan Cement and Suez Cement was likely due to their sense that capital gains are in the offing once the long-awaited stake sales take place. Helwan closed at LE32.41, while Suez wrapped up the week at LE33.23.
Recommend this page
© Copyright Al-Ahram Weekly. All rights reserved
Send a letter to the Editor