IMF loan and proceeds of bonds pushes EGX to restore historic levels

Funding will push the EGX past the foreign exchange fluctuations to target 11,200 points this week, say investment managers

The Egyptian Exchange (EGX) is stepping into a new phase this week, on the back of the Ministry of Finance's success in securing $4bn through a private offering of bonds in the Irish Stock Exchange for the Central Bank of Egypt (CBE). Moreover, Egypt is preparing to receive the first tranche worth $2.75bn from the International Monetary Fund (IMF) next Wednesday as part of the $12bn loan. Collectively, both steps would support the exchange rate stability and encourage the continuation of the purchasing trend on the EGX, especially by foreigners.
According to investment managers and EGX brokerages, these steps enhance the market's ability to attract funds from foreign institutions, and take more share of purchases away from hot money.
They said that treasury bills and bonds are likely to attract foreign investors again. Following the 25 January Revolution in 2011, foreigners almost stopped buying bonds and bills.
Furthermore, the expectations of investment managers are supported by Merrill Lynch, stimulating investors to buy treasury bonds issued in Egyptian pounds, after the national currency devaluation against the US dollar and the rising potential for stability after the CBE floated the pound.
Technical analysts predicted that the EGX may reach 11,200 points, which is a strong resistance point that would indicate the directions of the EGX main index, EGX30.
Mohamed Fathallah, managing director of Al-Tawfik Brokerage Firm, said that the EGX is now exceeding the currency risk gradually as a result of the last steps for securing hard cash, whether through offering bonds or the IMF approval to provide Egypt with $12bn.
He added that this would raise the liquidity of foreign exchange reserves and then crack down on currency speculation operations, which would accelerate the pace of exchange rate stability.
He pointed out that the EGX is likely to continue climbing this week, on the back of the positive news, which supports the re-entry of foreign institutions to invest in stocks and treasury bills denominated in Egyptian pounds.

CEO of Prime Holding, Mohamed Maher, said that the first tranche of the IMF loan and the offering of bonds would accelerate the entry of foreign funds to buy shares in the EGX again, especially since the stock market already attracted some new foreign funds last week.
He pointed out that the most important factor for the EGX is to reach a stable exchange rate, in which Egypt has been making good progress thanks to the newly acquired foreign fund.
In terms of technical analysis, Ehab El-Saeed, head of technical analysis at Osool Securities Brokerage Company, said that last week was historic for the EGX, having gone up by 21.31% and closing at 10,688 points.
He pointed out that EGX30 is expected to reach 11,200 points which would indicate the direction of the index. He noted that the upward trend of the market is receiving very good support with trading volume ranging between EGP 1.5-2bn every session.
The EGX has registered its highest average weekly trading values since 2009 worth EGP 8bn. Purchases of foreign investors reached EGP 1.9bn.