Hoisted by good news

A long-awaited interest rate reduction and the expected inclusion of 14 Egyptian companies on a global investment index have nudged the market out of its sluggish pace. Sherine Abdel-Razek reports
A number of positive macro and micro developments were the anticipated incentives for reversing the market's lengthy downward trend this week.
A Central Bank of Egypt interest rate reduction, the inclusion of 14 local companies on a global investment index and good first quarter results for market bellwethers have done their part to revitalise the market during the week ending 12 April.
The value of transactions doubled through the week to reach LE572 million, its highest level in two months. Market big caps regained part of the losses they sustained last week, most of them ending in positive territory.
Morgan Stanley Capital International's (MSCI) announcement of adjustments to its Egypt index in preparation for Egypt's inclusion in its Emerging Markets Free (EMF) index on 31 May 2001 has given the market a pat on the back. The MSCI Egypt index is a stand-alone indicator that tracks the performance of 15 Egyptian big caps.
The adjustments included the removal of two companies -- the Egyptian Financial and Industrial Company and West and Central Delta Flour Mills -- and the inclusion of Orascom Telecom to replace them on the index, a move which raised OT's share price by LE4.04 this week to close at LE28.96.
In addition, MSCI altered its criteria for valuation on the index. Instead of including total market capitalisation for these companies, now only the companies' free-floated stakes will be taken into account.
According to these adjustments, Egypt's initial weight in the index will stand at around 0.28 per cent, at a worth of LE2.53 billion. The figure represents the value of the free-floated stakes in the 14 Egyptian companies currently included on the index.
However, since free-float adjustments to MSCI indices will only take place in November 2001, initially, Egypt will be added to the EMF in May without those adjustments.
Accordingly, Egypt's weighting on the MSCI EMF index will be higher till November, standing at around 0.46 per cent. Encouraged by the figure, foreign investors have raised their buying orders. The gap between their selling transactions, which came to LE80.6 million, and their purchasing orders, worth LE 66 million, narrowed compared to the previous week.
MobiNil had a good week, enjoying the highest weighting among its peers on the index. In its first quarter results announced mid-week, it posted a net profit of LE90.5 million, showing a substantial increase over the same period last year. The companies shares shot up to close at LE 64.57, snatching a LE8.08 increase.
Not as lucky was Suez Cement, whose shares lost LE4.32 to close at LE 34.17. In a surprising move, Suez Cement extended the deadline for receiving bids for its 16 per cent capital increase from the previously announced date of 9 April 2001. While the new deadline has not yet been made public, the company said the reason for the postponement was the fact that it has received only one bid, which contradicts the company's prior declaration that three European cement companies have shown initial interest in the deal.
Suez Cement had approved a capital increase of 10.1 million shares in an assembly general meeting (AGM) held last February, which, if carried through, would raise the number of the company's outstanding shares to 64 million. The AGM specified that the capital increase would be allocated only to a foreign strategic investor, who would consequently own 15.8 per cent of the company.
The market has also been driven by important developments on the macro level. In a long-anticipated move, the Central Bank of Egypt (CBE) announced a reduction in the discount rate by 50 basis-points to 11.5 per cent. The discount rate is the one at which the CBE extends short-term loans to commercial banks and is considered a benchmark for setting the interest rate on credit extended by banks to its customers.
The move, the first since 28 months, is a new signal to the banking system that CBE is starting to ease monetary policy, thus dealing in a more realistic way with the two-year liquidity problem. Money market experts hope the rate reduction will shore up a sagging stock market and increase domestic liquidity.
Some market watchers feel, however, that the move is too little, too late. "It is a good sign, but they could have done much, much more. It [the discount rate] should have been brought down to 10 per cent and this should have been done six months ago," said an emerging market economist quoted by Reuters
"The key thing is to catch up, but I'm worried that having done this, they think they've done enough now," he said.
The CBE last changed rates on 17 December 1998, when it cut the discount rate to 12 from 12.25 per cent.
Meanwhile, the bond market is expected to be positively impacted by another important development. Egypt's consultative upper house, the Shura Council, has approved in principle a draft law authorising the minister of finance to issue sovereign bonds worth up to $2 billion. While still awaiting the People's Assembly's authorisation, the law would give the minister the authority to issue bonds with a maturity period ranging from between five and 30 years. Egypt has been preparing for the debut of its sovereign Eurobond for some time, which will be used as a benchmark for setting the prices of the country's corporate bonds.
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Falling on hard times 29 March - 4 April 2001
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MobiNil
Central Bank of Egypt
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