Egypt shares to test historical peaks as foreign investors likely to inject cash-ins Benchmark index EGX30 rose 0.81% in a week; closes at 15,443.18 points
Egypt's shares are expected by analysts to move upwards in the few coming sessions, as foreign investors are expected to build new positions in large caps ahead of the earnings season. The main index saw a return of purchasing powers, which helped push its gains, according to analyst Sameh Gharib of the Roots Stock Brokerage House. Gharib added that the Egyptian Exchange (EGX) recorded a meteoric rise in volume last week driven almost entirely by record-setting foreign institutional trading. He explained that last week was the D-Day for the MSCI Egypt Index rebalancing, with Eastern Tobacco coming in and EFG Hermes swapping out. Meanwhile, a recent report issued by FXStreet said that the VanEck Vectors Egypt Index ETF (EGPT) 0.15% could be worth revisiting. EGPT, the only ETF trading in the US dedicated to Egyptian stocks, is up more than 3% this year and nearly 19% over the past 12 months. The report added, "still, investing in Egypt, North Africa's largest economy, is not for the faint of heart. The country has bouts of political volatility, a checkered human rights record, and is suspected of being home to Islamic State militants." The report also noted that there is the 14.8% yield on Egypt's 10-year bonds, another trait illustrating the point that EGPT is not your run-of-the-mill single-country investment. On the other hand, there are signs of improvement in the Egyptian economy. "Egypt's first interest rate cut since exchange rate liberalisation has been made possible by an improvement in macroeconomic stability, underpinned by more orthodox policy settings under the country's International Monetary Fund programme," said Fitch Ratings. "These factors were reflected in our revision of the outlook on Egypt's ‘B' sovereign rating to ‘Positive' last month." EGPT, which turned eight years old earlier this month, holds 28 stocks. As is the case with many emerging markets' single-country ETFs, the Egypt fund is heavily allocated to financial services stocks. That sector represents 23.3% of the fund's weight. Real estate and materials stocks combine for almost 40% of EGPT's roster. The Central Bank of Egypt (CBE) cut its overnight deposit and lending rates by 100 basis points (bps) on 15 February, to 17.75% and 18.75% respectively, according to Fitch. "Its main operation and discount rates were also cut by 100 bps, to 18.25%. The CBE had increased rates by 700 bps since devaluing the Egyptian pound in November 2016," the report said. "It is prosaic advice, but ETF investors should always know what they own. In the case of EGPT, investors, perhaps unknowingly, are embracing a small-cap fund. The weighted average market value of the fund's holdings is just $1.6bn: small-cap territory. Over 90% of EGPT's components are classified as mid- or small-cap stocks," the report noted. Additionally, EGPT's three-year standard deviation of 27.9% is nearly double the comparable metric on the MSCI Emerging Markets Index. EGX30 ends the week on a positive note The Egyptian Exchange (EGX) saw a very positive performance in the week that ended Thursday 1 March, supported by foreign investors' purchases that exceeded EGP 450m. The last week of February saw the main index reach an all-time high at 15,700 points, with liquidity recording a historic daily level near EGP 4bn. The benchmark index EGX30 rose 0.81% and closed at 15,443.18 points, seeing traded volumes of 991m shares, with a turnover of EGP 6.9bn. As for the market capital, it gained a total of EGP 8.8bn, closing at EGP 892.2bn, compared to EGP 883.4bn last week. The small and medium enterprises EGX70 rose 0.64% to 861.59 points, while the broader index EGX100 gained 2.87% to 2,106 points, and the equal-weighted index EGX50 also went up by 1.09%. Market analyst Michael Mamdouh Naguib said in a research note that the Egyptian Exchange was able to reach a new peak. Support levels are now between 15,400 and 15,315 points, while resistance stands at 15,721. Meanwhile, Madinet Nasr for Housing and Development stock soared 4.2% last week, as the company posted EGP 943.2m in standalone profits for the year ending 31 December 2017, registering a 28% rise from EGP 738.7m in 2016. The company's standalone revenues also grew to EGP 2.11bn in 2017 from EGP 1.7bn the year before, according to a filing to the Egyptian Exchange (EGX). The company's consolidated figures were the same as its standalone results. Madinet Nasr for Housing and Development is targeting sales ranging between EGP 5.5bn and EGP 6bn in 2018. The company's board has recommended a bonus share distribution of EGP 0.15 per share for 2017 along with raising issued capital to EGP 1.15bn from its current EGP 997.1m. The bonus share distribution will be financed through Madinet Nasr for Housing and Development's profits for 2017. Madinet Nasr for Housing and Development's stock closed Thursday at a rise of 1.19% to EGP 11.08.
