Trade on: Stock market

Outline

The Egyptian Exchange (EGX) is one of the oldest stock markets in the Middle East, dating back to 1883. It covers the main market, an over-the-counter market, and the Nile Stock Exchange (Nilex), a relatively new market board for small and medium-sized enterprises. As of January 31, 2018 there were 222 companies listed on the main market with a total market capitalisation of LE855.7bn ($56.4bn) and 32 listed on the Nilex with a total market capitalisation of LE1.18bn ($77.7m).

The two most widely followed market indices are the EGX30 Index, a free-float market-capitalisation-weighted index of the 30 most actively traded companies on the EGX; and the EGX70 Index, a price index that tracks the performance of the next 70 most active stocks on the main market. Egypt is also part of the Morgan Stanley Capital International Emerging Markets Index, reflecting the market’s size, liquidity, openness to foreign ownership and ease of capital flows. Since the flotation of the Egyptian pound on November 3, 2016, the EGX30 Index has gained approximately 76% in local currency terms. This came on the back of renewed optimism and regained investor confidence following the signing of a $12bn Extended Fund Facility with the IMF, and the implementation of a number of structural economic reforms under the country’s three-year programme.

Total market transactions for the first month of 2018 stood at LE31.6bn ($2.1bn), implying an average daily turnover of LE1.02bn ($67.2m). Institutional investors accounted for around 52.8% of the total value traded, while individual investors accounted for the other 47.2%. In another classification, non-Arab foreign investors accounted for about 20.5% of the value traded during the month, Arab investors for 9.5% and Egyptian investors for approximately 70%. Non-Arab investors ended the period as net buyers at LE3.9m ($257,000), as did Arab investors at LE690,000 ($45,500).

Backed by strong market performance, 2017 witnessed an increased number of initial public offerings (IPOs) with five transactions taking place, namely Ibnsina Pharma at LE1.56bn ($102.8m), Raya Contact Center at LE808m ($53.2m), MM Group for Industry and International Trade at LE708m ($46.6m), Dice Sport & Casual Wear at LE747m ($49.2m) and AT Lease at LE127m ($8.4m). As of February 2018 the main market was trading at an average price-to-earnings ratio of 16.83, and offering an average dividend yield of 5.82%.

Projection

Backed by improving economic conditions and the government’s commitment to its reform programme, the outlook for market performance in 2018 is bullish. The Central Bank of Egypt is expected to start an easing cycle at its upcoming meeting, potentially cutting interest rates by as much as 600 basis points throughout the year, which should reflect positively on the market in general. Egypt could also be set for a credit rating upgrade in 2018, with international ratings agency Standard and Poor’s revising its outlook in November 2017 from stable to positive. This should further improve investment appetite, attracting more inflows from foreign financiers. As for company earnings, a pickup in private consumption growth, coupled with a more stable foreign exchange environment, should translate to decent growth.

Another source of optimism for the stock exchange is the potential string of IPOs coming to the market. According to media reports, at least six private companies, including BPE Partners, Rooya Group, Egyptian Propylene and Polypropylene Company, Misr Italia, Unionaire Group and CI Capital are looking to offer shares on the EGX. This is in addition to the government’s ambitious partial asset-sale programme, including Banque du Caire and engineering firm Enppi.

There are also some regulatory efforts to encourage dual listings of some GCC companies. Initiatives in the EGX’s four-year development strategy include launching a derivatives market, activating the bond market, offering exchange-traded funds, introducing sukuk (Islamic bonds) and upgrading the settlement systems.