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How do foreigners, despite crisis, make profit in exchange market? Exchange market experts put forth several explanations, most notably the inability to transfer money abroad and taking advantage of low market value of shares
Despite the successive crises witnessed by the Egyptian Stock Exchange (EGX), whether due to domestic or external events, foreign investors involved in the market have been able to make buying profit of about EGP 595.76m since the beginning of the year until 15 October. In contrast, Arab investors made selling profit of EGP 327.7m. Foreigners maintained net buying profit since the beginning of the year until now, in spite of experts' expectations. All indicators highlighted that the market is unattractive to foreigners as a result of several factors. Perhaps the most prominent of these factors is the violent fall of the market's main index EGX 30 since the beginning of the year, as it fell to about 14.1% of the share value until mid-Tuesday. Executives and technical analysts at brokerage firms operating in securities believe that these purchases do not reflect the confidence of foreign investors in the profitability of the EGX. However, some of these factors force investors to stay, such as dollar liquidity to transfer some of their revenues abroad. Outstanding dues force them to stay Director of the Technical Analysis Division at Osool Securities, Ehab Saied, said the market has not been seeing many foreign investors, as it has been struggle as a result of the bad economic performance, as well as the crises in China and Greece. He added that foreigners' inability to transfer their money abroad due to absence of dollar liquidity is one of the main reasons behind their purchases. "They prefer to recycle their revenues that are stuck in the market or build purchasing centres instead of depositing money at banks," he added. Custodians at brokerages firms and banks previously said that the volume of foreign outstanding dues are estimated at less than EGP 1bn, most of which date back to before Central Bank of Egypt's (CBE) decision in March 2013 to allocate a foreign investment fund that provides foreign exchange to foreign investors who want to transfer their profits from selling bills and bonds abroad. Saied questioned why foreign investors would pump new money into a market likely to drop even more, which means that profits would further decrease when evaluated in dollars. He added that this will force them to hold until the exchange price stabilises. The CBE has recently further devaluated the pound by 20 piasters against the dollar in two sessions, whereby the dollar now stands at EGP 7.93. Saied pointed out that some foreign investors have already moved to the Gulf market, especially Saudi Arabia, the UAE and Qatar, to take advantage of the gradual opening-up to international markets in the stock exchanges of those countries. The UAE and Qatar have been included in the Morgan Stanley Emerging Markets Index, which is considered an essential compass for many of the world's investment funds, while Saudi Arabia expressed its willingness to open the door to foreign institutions to invest directly in stocks without restrictions. Building new purchasing centres Chairman of Egyptian Arabian (Cmar) Securities, Adel Abdel Fattah, pointed out that there are foreign institutions that buy stocks, but at a slow pace. He explained that the reason behind this is the decline in the market value of the shares to attractive levels, which enables foreigners to achieve medium-term profitability, as well as the positive yield achieved on the back of the parliamentary elections. Abdel Fattah pointed out that foreign investors changed their strategy, whereby purchases are now limited to a certain number of stocks, particularly CIB, unlike in the past, where purchases were divided among components of the EGX 30 index. On the other hand, Abdel Fattah noted that foreigners have stepped up their sales during crises. He gave an example of their net profit of EGP 270bn that was achieved in one week during the outbreak of the Chinese yuan devaluation crisis. He added that the same situation recurred when the state imposed the capital gains taxes. Repaying foreigners' tax fees One of the most stimulating steps for foreign investment in the stock market is the president's decision to postpone the 10% capital gains on profits of trading stocks, while continuing to collect a profit distribution tax of 10%. Misr For Clearing, Settlement and Central Depository (MCSD) Managing Director Tarek Abdel Bary said all collected taxes have been repaid following the announcement of the president's decision on 17 May 2015, as well as all sums resulting from the settlement of operations during the first four and a half months of this year to custodians at brokering companies and commercial banks . MCSD used to deduct 6% of the capital gains realised by foreign investors from stocks transactions, even after the cabinet announced the postponement of the tax, until the president declared the decision officially on 23 August. The Egyptian Tax Authority has sent official letters to Egyptian investors registered at the EGX and MCSD to provide a tax return and pay taxes due on capital gains achieved from 1 July 2014 until 31 December 2014 of the same year.
