Fears of spiral losses seemed to be groundless with the market moving between record leaps and limited gains. Sherine Abdel-Razek asks about the reasons of the revival and how sustainable it is While the losses in the first two days of transactions after the local market's 55 day-long closure came less than feared, the gains in the following trading sessions took all market observers by surprise. On Wednesday and Thursday 23 and 24 March, the EGX30 lost almost 12 per cent to reach its lowest level since April 2009. On Sunday and Monday 27 and 28 March, the stock market administration had to suspend trading on early transactions with the broad based EGX100 starting the transactions with leaps exceeding five per cent, the ceiling of stock movements above or lower of which the market should be suspended for half an hour. Tuesday's session added to the market gains with the EGX30 adding three per cent. Worries of a wide range of slumps had prompted the closure of the market for seven weeks after Egypt's uprising. Investors demonstrated in front of the cabinet and the bourse headquarters to pressure the government not to resume trading for fear that a premature opening would wipe off their investments. Market analysts expected the market to keep on nose-diving during the first week and put the expected loss through the week to within 20- 30 per cent. However, since the mid-day transaction of Thursday, buying sprees pushed shares up by 10 per cent. Foreigners who were expected to dump their holdings bought heavily in certain blue chips. Bargain hunters snatched shares across the board after they reached very attractive levels. "We expected Wednesday's decline and usually steep declines are followed by rebounds, but we never expected it to be that soon," said Hassan Kenawi, trader at HC securities. Kenawi explained that the market saw exaggerated declines since the outbreak of the uprising. "If we added the losses of last Wednesday and Thursday to those of 26 and 27 January, the two sessions that followed the outbreak of the uprising, we find an overall loss of around 28 per cent," he said. "A correction, or a buying wave, was imminent especially that a lot of the listed shares reached levels equivalent to their par values and even less in some cases," he added. While Wednesday's sessions witnessed relatively thin transactions that did not exceed LE480 million, with a lot of selling orders not met by buying activities, the following sessions witnessed vigorous buying, pushing the overall value of transactions to above LE1 billion, and to LE1.6 billion on Monday. "Investors snatched shares of certain companies that used the closure period in announcing plans to distribute high dividends that in certain cases were as high as 20 per cent of the share price," said Ahmed Zakaria, head of transactions at Okaz Securities. Zakaria explains that in some cases, those companies were not planning to distribute such high dividends but decided to do so to cushion the expected decline in share values as soon as the bourse opens. Examples of companies that announced high dividends are Sinai Cement which will distribute LE9 on each share, and Arab for China and Porcelain. The Egyptian market gains coincided with, and was helped by a positive sentiment in other markets of the region, according to analysts. "The good performance in the Arabic markets gave a pat on the back of the local market as any liquidity obtained from there can be invested here," said Zakaria. Most Middle East markets rallied on Sunday and Monday as investor bet on strong first-quarter results, and positive sentiment from Saudi Arabia's additional social spending plan resulted in sustained gains. Saudi Arabia has announced extra spending worth about $130 billion this year as it tries to stave off any dissent, especially among its Shia minority. The better than expected performance in the local market will not be long lived according to all three analysts. "I don't think it will continue after the end of this week," said Mohsen Adel, managing director of Pioneers investment funds. There are problems that would eat out the profits the market is making now, according to Adel who points to the instability in the political scene as one reason. "There are plans to organise a million man demonstration on Friday. This is in addition to many professional demonstrations across the country. Such events affect people's willingness to put their cash in long- term investments as shares," he said. Another factor that raises question marks about the soundness of the revival, according to Adel, is that so far there is no clear trend for foreigners' plans for the market. "What we have been seeing so far is a limited foreigner selling activities and not a corresponding obvious increase in their buying orders," explains Adel. He added that through many recent discussions with managers of many foreign funds, it was obvious that they consider only four markets in the region: Morocco, Dubai and joint- third come both Egypt and Jordan. However, they believe that Egypt will not be very appealing before six more months. While the market gained nine per cent on the first three sessions of this week compared to the 12 per cent it lost last Wednesday and Thursday, it is still the worst performer in the region as its accumulated losses since the beginning of the year are 24.4 per cent by the end of Tuesday. "In stock markets, it is known that rebounds following severe declines are usually of limited value that never exceed 30-40 per cent of the decline, then the market stabilises for a while before heading north again," according to Zakaria. Another factor that undermines the possibility of a sustained rebound is the limited effect that initiatives by different investment funds have to support the market. "Figures published by investment funds about the sums they pumped in the market last week are peanuts. Even the new fund the bourse announced it will be launching soon to buy in the market will not have an impact as the capital of the fund is as small as LE250 million," said Adel. The market officials seem to be optimistic. In a press conference held on Tuesday, Mohamed Abdel Salam, acting chairman of the stock exchange, said that over-the-counter transactions would be resumed on Wednesday. The government has been reluctant to restart normal trade until compensation was arranged for small investors caught out by falling share prices and safeguards put in place to prevent anyone under investigation from shifting funds abroad. Market's top picks Analysts recommend these stocks: - Companies in food and beverage industries: The growth rate of these companies is always the highest as they are indispensable even in matters of national and international problems. Examples of such companies are milling companies, poultry companies, Juhayna for Food Industries, Bisco Misr, and Eastern Tobacco. - Companies in pharmaceutical sectors: Demand on medicine and health products is not affected by any changes even in the income of families. The picks are EIPICO, Medical Union Pharma, and Cairo Pharma. - Petrochemical firms: The increase in oil prices and a plan by the government to focus on using the locally produced oil in manufacturing derivatives instead of exporting raw oil will energise the sector. The list includes Maridive Oil Services and AMOC. - Fertilisers firms: There is a government plan to reclaim more land and get back a lot of previously divested arable areas. Both factors will increase the demand on fertilisers. Moreover, plans to limit gas exports and use it locally will decrease the cost of production and thus increase the companies' revenues. The list contains Orascom Construction Industries (OCI), EFIC and Abu Qir Fertilisers. - Telecommunications is rapidly expanding and changes in Orascom Telecom structure with the approval of the VimpleCom deal, and talk about a possible breakthrough in the Djezzy talks, are driving the whole sector upwards. Good examples are Telecom Egypt, Mobinil and Orascom Telecom. - Companies with international and regional operations as their dependence on foreign markets mitigate the effect of the local disturbances on their performance. OCI, Al-Seweedy and Al-Arafa are some examples. - Companies with high dividend yields as no matter how bad share prices would go, their share of the profit would be a good compensation. Examples are Sinai Cement and Advanced Pharmaceutical Packaging Company.
