How would new IMF loan help attract foreign investment back into Egypt stock market?

It is necessary to secure dollar liquidity to prevent speculations on local currency: Amr Elalfy

The Egyptian Exchange (EGX) witnessed a major breakthrough during the last trading sessions due to the increase in liquidity and the rise of its major index to record levels, exceeding the barrier of 15,500 points.
Following the International Monetary Fund's approval to disburse the $347m first tranche of the $3bn loan to Egypt, experts unanimously agreed that it is a certificate of confidence for the Egyptian economy.
Stock market dealers expected that stock performance would interact positively with the recent IMF decisions regarding Egypt. This comes especially as it pushes more flexibility in the exchange rate in front of the basket of foreign currencies, which is likely to be liberalized during the coming period, accompanied by expectations of an increase in interest rates by about 2-3%. During the next meeting of the Central Bank to control inflation which exceeded about 21.5% last November.
The decision of the Executive Board of the IMF, issued on Friday evening, allows the disbursement of immediate payment to the Egyptian government in the amount of $347m to help meet the needs of the balance of payments and budget support, and over the duration of the program.
The policy package includes a permanent shift to a flexible exchange rate system to enhance resilience in the face of external shocks, rebuild external protective reserves, and implement a monetary policy aimed at gradually reducing inflation rates in line with the objectives of the Central Bank, in addition to strengthening the mechanism for transmitting the effects of monetary policy, including from by cancelling subsidized lending programs.

EGX30 closed last week's trading at 15,141 points, up 2.04%, while EGX70 EWI rose by 4.9% to 2,864 points.

Amr Elalfy, head of the research sector at Prime Securities, said that the positive part of the IMF's decision is the approval of disbursing the first tranche of the loan, but there is a part related to the decrease in the value of the tranche that will be disbursed. He pointed out that the additional financing of about $14bn from Egypt's international and regional partners, is the most important.

He expected that the exchange rate of the pound against the dollar would witness more flexibility during the coming period, pointing to the need to focus during the coming period on providing dollar liquidity in order to prevent speculation on the local currency, in addition to the need to open imports again to control inflation.

Elalfy pointed out that focusing on investing in projects with dollar returns has become an urgent necessity, and a clear approach must be adopted in the medium and long term.

He expected the stock market to witness a price reset through an expected correction that will be accompanied by stability, pointing out that it could witness a profit-taking process driven by the recent rise in the market, likely to recycle liquidity between some stocks and others.
EGX30 capped rose by about 2.6% to 18,178 points, and the broader EGX100 EWI rose by 4.8%, to settle at 4,214 points.

Mohamed Hassan, Managing Director of Asset Management at BLOM Egypt, said that the loan disbursement is a measure of confidence in the Egyptian economy, and will work to attract more Gulf investments and funds from international institutions.

He added that the impact on the stock market at the present time is positive, but the market carries a risk, especially since there is an expected correction that could begin with the adoption of flexible exchange rate policies, stressing the upward trend of the stock market.
He advised long-term investors to buy and hold, and short-term traders to trade between support and resistance, pointing out that the important support area is at 15,000 points, which is located at 15,500 points.

The market witnessed trading values of EGP 19.7bn by the end of the week, through the trading of 6.8 billion shares, by carrying out 514 thousand buying and selling transactions, compared to the previous week's trading, which amounted to EGP 78.6bn and the amount of trading of 5.5 billion shares, through 463,000 transactions, to raise the market capitalization to EGP 973.5bn.

Aziza Elbadawy, investment manager at FinBi financial advisory, said that the impact of the fund's decision is positive with regard to mergers and acquisitions in the Egyptian market, especially since there is an emphasis on adopting a flexible exchange rate, which will drive mergers and acquisitions to activity during the coming period.

Elbadawy expected that the goods accumulated in the ports would be gradually released after providing dollar liquidity, pointing out that Egypt's situation with regard to the fund is better than Tunisia, especially since the fund refused to disburse the first tranche to Tunisia.

Elbadawy explained that there is a positive effect related to the stock market, as the foreign investor is given a certificate of confidence in the low risk in the Egyptian market compared to other emerging markets, which encourages the return of foreigners to the Egyptian Stock Exchange.

Foreign transactions recorded a net sale value of EGP 1.3bn, with an acquisition rate of 8.5% of the buying and selling operations on stocks, and the Arabs tended to sell, with net transactions amounting to 60.6 million pounds, with an acquisition rate of 10.8%, after excluding deals, and shares acquired 87% of stock exchange transactions. During the past week, the value of bond trading represented about 13% of transactions.