Billiations, bankruptcies, nationalisations and suicides are some of the scenarios international stock markets witnessed through 2008. Sherine Abdel-Razek revisits the drama the local bourse underwent The year 2008 will always be remembered as the year markets worldwide shouldered their heaviest losses ever, on the back of the worst economic crisis since 1930. In Egypt, it marks the year the market both recorded its highest ever levels, and suffered its steepest decline. The CASE30, the market's main index tracing the performance of the 30 most liquid and active listed companies, soared by 13 per cent at the start of the year on the back of increased transactions by foreigners, mounting to LE2.245 billion worth of transactions through to the end of April. Moreover, public offerings and private placements of the real estate company Palm Hills and Maridive for oil services were heavily oversubscribed reaching 31.2 times in Maridive's private placement, adding to the market LE3.33 billion worth of transactions through the end of April. This increased interest was mirrored in an escalating CASE30 to touch the 12,000 points threshold for the first time since its inception. However, May dealt the market a severe blow, with government-introduced measures to eliminate tax exemptions and increase energy prices, perceived by foreign investors as the government withdrawing from its investment-friendly policies. A rumour that these measures would be followed by a new tax on the traded securities capital gains worsened the situation. CASE30 lost 42 per cent of its value in the five months to follow till September, the month the international financial crisis started. The market thereafter followed the international bourses' southward trend to end the year 56 per cent lower than its level on early January. According to the annual report issued by the Egyptian Stock Exchange, the CASE30 decline was not the worst amongst regional and emerging markets, with other stock exchanges like those of Dubai, Turkey, India and Russia's losses ranging between 62 and 74 per cent. As for market capitalisation, reflecting both prices and volume of shares traded in the market, it declined by 38 per cent during the year to reach LE474 billion in 2008. The market's overall turnover increased through 2008 by 48 per cent to reach LE476 billion. Taking a closer look at the way things went on the market, the beverages and food sector was the least affected through the year as it declined by 19 per cent, while that of the tourism and hotels was the largest loser. "The food and beverage sector is to a great extent a defensive sector, people won't stop eating, in other words, it's immune from recession," said Mohamed Siddiq, acting head of research at Prime Securities. He explains that in times of downturn, market decline is mitigated through cash yields and high payout. As for tourism, while Egypt depends on inbound tourism mainly from the EU, this vanishes during recession according to Siddiq, since people tend to spend less on leisure. He pointed out that hotel occupancy rates have fallen to 30 per cent from 80 per cent in 2007, a fact that was largely discounted in the market beforehand. Another sector that showed unexpected performance levels was that of personal and household products, including textile companies like KABO and Arab Cotton Ginning, which took the lion's share in value of transactions at LE39 billion. While foreigners selling out were the reason given for market decline, especially in the last quarter of the year, the report reveals that foreigners' selling orders actually equalled their buying transactions. Meanwhile, it was the Arabs who were net sellers with a LE1 billion difference between buying and selling transactions. Siddiq attributes this to the decline in oil prices below $40 per barrel, while average GCC breakeven point stands at $47 per barrel. "This came as a hit to GCC government pockets, that wouldn't allow petrodollars to flow into the Egyptian economy neither directly via foreign direct investments, nor indirectly via Egypt's bourse," he said. On a more positive note the report noted that 90 per cent of listed companies posted profits during the third quarter, and 20 per cent of those companies almost doubled their profits. Moreover, 62 per cent of the listed companies are traded at a price earnings ratio of less than 10 per cent, which means that for every LE10 paid in the share price, the investor get LE1 in earnings which both imply low share price and high yields. This is among the main attractions of the market according to analysts but how long would it last? Siddiq said the situation differs from one sector to the other. However, Prime Research estimates that a decline in earnings across all the sectors is expected, at least during the first six months of 2009. He attributed the expected retreat to the high level of inventories bought when commodity prices were much higher and therefore simply cannot find buyers now.
