EGX likely to continue trade decline amid hopes of US-China trade war end

Pharos expects main index to pass 13.800 points supported by decline in sales

Egypt's stock market is highly expected to rely this week on light trading on certain shares with some companies announcing expansions and strong business results while other companies benefit from the decline of US dollar price against the local currency. Therefore, selective buying will be the main theme of the market, while many stocks will remain in the red, especially in the light of the recent decline in trading volume during the month of Ramadan and marginal purchase losses and low demand.
Although the demand has declined, the emergence of low supply at the end of last week indicates that the indices will move sideways tending upwards.
The upwards trend is supported by a relative recovery in global markets amid hopes of a quick end to the trade war. US stocks rose on Friday for the first time in three sessions.
US President Donald Trump expected a quick end to the US-China trade war, noting that the anticipated deal with Beijing would lift bans on Huawei.
Trump's comments come amid stalling trade talks between the two sides. Washington said there are no current plans to pick up the talks, and Beijing has said it will not go this way unless the United States corrects its actions.
Abu Bakr Imam, head of research at Sigma Capital, said that low liquidity will continue in the Egyptian Exchange during Ramadan with stocks moving up and down based on the companies' business results that many of which come strong. Also, many leading stocks whose companies have strong business results are likely to continue their upwards. However, there are other conditions that will define the market's direction over the next short period, including the anticipated increase in fuel prices the local market and the positive news about the end of the US-China trade war.
Pharos Securities Brokerage believes the market's rebound last week may continue this week with some risks, such as the decline of trading. The last week's rebound was resulted by the decline of supply not the increase of demand. But the most likely scenario is that the market keeps picking up pace to bypass resistance at 13,800 points then the next resistance at 14,165 points.
A conservative investor who does not have enough liquidity, according to Pharos, should fortify their long positions and stop buying on margin. But trader who can withstand higher risk should enter into selective short-term trading and place profit protection orders below the main support level at 13,300 points.
Moreover, Naeem Brokerage believes that the downturn of US dollar price against the Egyptian pound will support selective buying operations, as it is positive for the stocks of companies which rely on importing. They include Ezz Steel and Ezz Dekheila Steel – Alexandria, which import iron ore; GB Auto, which imports cars and accessories; Juhayna, Obour Land, and Domty which import powder milk, and Edita which imports raw materials, including wheat.
For companies that rely on exporting, the decline of US dollar value will not be in their interest, such as Oriental Weavers, whose exports exceed 60% of total production; Abu Qir Fertilizers, MOPCO, Egyptian Chemical Industries, and Egyptian Kuwaiti Holding which export 55%, 60%, 40%, 70% of their urea production, respectively; and Sidi Kerir Petrochemicals Company which exports 50% of its polyethylene production.
Noteworthy the Egyptian pound value has gained more than EGP 1 against the US dollar since the beginning of 2019, up 5.83%.
The EGX30 index closed at 13,776 points with a slight rise of 0.86%, while the EGX70 index decline by 0.88% to close at 603 points, while the S&P index rose by 0.55% to close at 2,163 points.
The EGX30 Capped rose by 1.54% to close at 17,170 points, while the EGX100 index was down by 0.65% to close at 1,536 points.
At the same levels, the total value of trading during the last week amounted to about EGP 3.1bn while the volume reached 390m stocks over 69,000 transactions, compared to trading value of EGP 3.1bn on 440 stocks through 67,000 transactions last week.
The stocks accounted for 74% of the total value of trading inside the market, while the value of trading bonds reached about 25.94% during the week.
The market capitalisation of the Egyptian Exchange increased by EGP 2.8bn during last week's sessions to EGP 751.7bn, a growth of 0.4% compared to the previous week.
The market capitalisation of the main index rose from EGP 386.6bn to EGP 390.7bn during the week ending, with a 1.1% growth, while the capital of the SME index declined from EGP 243.9bn to EGP 242.3bn, a decline of 0.7%. The capital of the broader index increased from EGP 630.5bn to EGP 633bn, up by 0.4%.
Egyptians accounted for 61.9% of the total trading on enlisted shares, while foreign investors accounted for 30.1% and Arabs at 8%, excluding deals. Foreigners recorded net sales of EGP 90.3m while Arabs net purchases reached EGP 63.9m, excluding deals.
As for certificates of deposit (CDs), the Egyptian Exchange's weekly report on the corporate balances of CDs revealed the depletion of Orascom Investment Holding Company and Lecico Egypt of their cap.
The Commercial International Bank's CDs balance increased to 11.59m certificates, and Edita Food Industries to 21.22m certificates.
Balance of CDs in other companies came as follows: Telecom Egypt at 168.52m certificates, Ezz Steel at 115.95m, Madinet Nasr Housing and Development at 386.77m, Naeem Holding at 73.19m, EFG Hermes at 177.12m, Palm Hills at 696.04m, Pachin at 3.56m, and GB Auto at 293.17m certificates.
The balance of Amer Group's CDs remained at 301.09m, Alexandria Mineral Oils Company at 306.02m, Suez Cement Company at 42.77m, Arabian Food Industries Company (Domty) at 61.24m certificates.