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Cushioning the descent
Published in Al-Ahram Weekly on 16 - 10 - 2008

As the real dimensions of the recent bounce in the market remain unclear, Sherine Abdel-Razek reports on efforts to extend it
Sighs of relief were heard at the local market on Monday and Tuesday after the international freefall came to a halt and foreign buyers returned. However, understandably enough given the current climate, all positive feeling was overshadowed by caution.
Things have improved massively over recent days. The gloom experienced here was best symbolised in the suicide of a 54-year- old Egyptian, who hanged himself Sunday after the decline in the stock exchange stripped him of all the savings he had accumulated over years working in Kuwait. He may have been one of the country's most desperate investors, but he certainly wasn't the biggest loser, dramatic though his case was. Thousands of Egyptian individuals have spent the past month under extreme pressure, as they watched how the market index literally ate into their savings as it took a nose dive into a bottomless sea of losses.
Analysts warn investors to remain cautious, as the outlook for the long term remains unclear and is mainly dependant on international financial developments. Despite the current attractiveness of prices, caution is still advised due to the turmoil in regional and global markets, brokerage firm Sigma Securities warned on its website.
The market's main index CASE30 has lost more than half its value in just the past six months, after hitting a high of 12,000 points in May. It lost 19.7 per cent last week alone, before starting to edge up Monday and Tuesday to regain around 10 per cent and settle at 6,138 points.
Senior officials convening last week and speaking in press conferences on ways to help ease the market's woes insisted that market fundamentals -- in other words the macro and microeconomic indicators -- are strong, and that no kind of state intervention will be carried out any time soon.
Stock exchange head Maged Shawki chaired a meeting with the bourse's board of directors on Sunday, and announced afterwards that the market's losses are but a reaction to the turmoil in international markets and the adverse effect of the drop in value of global depository receipts (GDRs) on locally listed companies. Those present at the meeting discussed the possibility of halting trading at the bourse for a while, until things settle down internationally. This proposal was ultimately rejected for fear of the negative message it might convey to shareholders, who might feel impelled to simply make more sales after the bourse reopened.
What was decided was that orders with prices higher or lower than 20 per cent of the opening price of the shares trading with no price limits will not be recorded, as a means to cut the range of losses.
Another suggestion raised at the meeting was to stop trading on GDRs, to prove that local problems were essentially a reflection of those riddling the international markets. However, the board of directors said they could not impose such a decision on companies with shares traded on international markets, as it is up to each company to decide for itself.
One other issue that was raised was a possible change in company weighting on the CASE30 index, to the effect that a bigger number of shares would start showing up on it. As things stand only five companies are listed, with Orascom Construction Industries (OCI) and Orascom Telecom alone representing around 65 per cent of the index. This loophole is expected to be dealt with early next year, with the introduction of two new indices that will reflect the performance of all actively traded shares, according to Shawki.
Meanwhile, companies started to make their bids towards containing the repercussions of the decline, with some resorting to buying back their shares to cushion the fall and hedge against more selling orders from shareholders. For one OCI purchased 853,104 GDRs -- equivalent to 1,706,208 ordinary shares -- over the period from 6 to 10 October. In addition, the company has purchased 669,532 shares from the local market at a price range of LE205 to LE253.
While regional governments were clear about their plans to intervene in their respective markets to cut losses, the Egyptian government was tight-lipped. Qatar announced its sovereign wealth fund will be spending $5.3 billion to buy 20 per cent of the shares banks traded on its market. In Egypt, traders believe the government has already intervened many times through investment funds, to buy shares in the market to prevent freefall, but no one knows the exact value of the buying orders. Press reports allege the state's Insurance and Pension Fund has invested LE28 billion in the market since May, when the market's decline began.
Tareq Amer, head of the National Bank of Egypt, said this week that the bank entered the market on Wednesday and brought along with it many companies whose share prices reached very attractive levels. However, he refused to reveal the names of the companies, or the value of the bank purchases.
On another level, the general division of companies working in the capital market, affiliated to the Egyptian chambers of commerce, has started a campaign to form a closed investment fund with LE1 billion in capital to make purchases on the market in times of trouble. Subscribers in the fund's capital are expected to be local commercial and investment banks, and the state-owned holding companies.
No one knows where and when to expect the next bounce or decline, and analysts believe the situation is totally dependant on developments in international markets. The technical analysis department of HC Securities noted that as long as the market was able to bounce back from around the 5,000 points level, it is expected to attempt its first minor recovery and head towards the 6,300-6,500 range in the short term.

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