Egypt shares likely to extend sideways move as CBE keeps interest rates on hold

EGX30 lost 3.5% in a week, hovering around its lowest level in 9 months

Egypt's stock market is expected by analysts to extend its sideways move this week, after the Central Bank of Egypt (CBE) left interest rates unchanged at the November meeting of Monetary Policy Committee (MPC).
A higher interest rate environment negatively affects stock market inflows, as investors tend to pump cash into banking sector assets.
The head of the capital market committee at the African Economic Council, Ayman Fouda, forecasted the EGX to extend its sideways move after the CBE decision.
The EGX's indices are likely to see sideways-to-declining performance after the CBE's Monetary Policy Committee (MPC) decision, Fouda highlighted, adding that the market is still waiting for positive news that pumps new liquidity into blue chips.
The EGX30 index may test the levels of 14,100 and 14,200 points and see support at 13,960 and 13,780 points, he pointed out.
The EGX70 is seeing a sideways-to-declining performance, he indicated, noting that it has resistance at 773 and 777 points and has support at 758 and 750 points.
Fouda recommends medium-term and long-term investors to monitor stocks well and activate medium-term stop-loss points, in line with keeping the liquidity of investment portfolios to resume buying after the recent correction phase ends and new positive incentives appear.
The MPC maintained the overnight deposit rate at 18.75%, the overnight lending rate at 19.75%, the rate of the CBE main operation at 19.25%, and the discount rate at 19.25%, according to a press release.
The committee attributed its decision to the decline of annual headline and core inflation, to 30.8% and 30.5%, respectively, during October 2017.
"This comes as a result of the moderation of monthly headline inflation rates between August and October 2017 to around 1.1%, compared to an average of 1.6% in the corresponding months in 2016," the CBE added.
Egypt's economic activity continued to improve with real gross domestic product (GDP) rising by a revised 5% in the fourth quarter of 2016/2017, averaging 4.6% in the second half of 2016/2017, growing at the fastest pace since 2009/2010, the central bank said.
"The baseline inflation outlook remains consistent with achieving the CBE's inflation targets of 13% (+/- 3 percent) in Q4 2018, and single digits thereafter," the bank added, noting that its MPC would continue to closely monitor all economic developments and will not hesitate to adjust its stance to achieve its mandate of price stability over the medium-term.
Meanwhile, Mohamed Gaballah, a market analyst at Pioneers Holding, expected the market to extend its sideways performance, awaiting fresh stimulus after the CBE decision.
The benchmark EGX30 index may maintain its upward trend as long as it is moving above 13,950 points, Gaballah noted.
The index has resistance at 14,200 points and an upside potential at 14,600 points, Gaballah added.
The EGX70 index is seeing a sideways performance, which will carry on over the coming period as blue chips attract more liquidity, the analyst noted.
The economist and market expert Safaa Fares said in a research note that the EGX30 index has resistance at 14,100 points and has an upside potential at 14,400 points.
The index has support at 13,830 points and a downside potential at 13,650 points, Fares highlighted.
The EGX70 index has resistance at 784 points, she added, noting that breaking above this level will push the index up to 796 and 770 points.
The economist continued that the EGX70 index may break support below 763 points.
Moreover, Mohamed Khedr, head of technical analysis at Prime Securities, forecasted the EGX30 index to test resistance at 14,150 points and see support above 13,700 points.
EGX 30 tests its lowest level in 9 months
The Egyptian Exchange (EGX) closed last week in the red zone, hit by a sell-off streak by local investors.
The benchmark EGX30 shed 3.5%, or 502.7 points, over the week, which is its lowest weekly level in nine months, to close at 13,847.36 points.
The EGX's benchmark will decrease in the short-term, but it is projected to rise in both the medium- and the long-term, Ahmed Thabet, a technical analyst at Jazira Securities Brokerage said.
The EGX30's main support stabilises at 13,800 points, and it may grow temporarily to levels ranging between 14,000 points and 14,050 points, Thabet added.
The main benchmark's trading volume came in 1.02 billion shares in a week, with a turnover of EGP 3.2bn.
Market capitalisation closed at EGP 771.03bn at the end of the week, compared to EGP 788.5bn in the week ending 9 November.
The Commercial International Bank (CIB) dipped 5.7% to EGP 73.46 after 4.9 million shares were traded, generating EGP 372.4m.
CIB's stock sees support at EGP 70 and EGP 71, which it may break above, but not in the current period, Thabet continued, noting that the stock may go up to EGP 75 and EGP 77.
If the stock breaks below EGP 70, it might reach EGP 65, which is not likely for the time being, the analyst concluded.
The small- and medium-sized enterprise EGX70 index lost 2.87% to 763.03 points during the week, while the EGX100 index fell 2.35% to close at 1,731.95 points.
Meanwhile, blue-chip EFG Hermes gained 4.5% in a week after the company posted better-than-expected results for the third quarter of the year.
The company reported a 61% year-on-year rise in consolidated profits for the third quarter of 2017 due to higher revenues.
Net profit stood at EGP 240.4m during the three-month period ending September 2017, versus EGP 149.4m in the prior year, the company highlighted in a filing to the Egyptian Exchange (EGX) last week.
Revenues leaped to EGP 1.017bn in Q3 2017 from EGP 371.13m the corresponding period of 2016.
In the first nine months of 2017, consolidated profits grew to EGP 1.005bn from EGP 18.19m in the year-ago period.
Meanwhile, standalone profits dropped to EGP 178.10m in the nine-month period of 2017, versus EGP 593.8m in the first nine months of 2016.
Meanwhile, , Mohamed Khedr, head of technical analysis at Prime Securities, expected Global Telecom to stop medium-term sideways moves, which lasted for eight months between the levels of EGP 6 and EGP 7.25.
He pointed out that the stock started to see a new strong bullish trend toward EGP 8.2.
Kheder recommended short-term investors to trade on each stock separately.