OBG talks to Mohamed Omran, CEO, Egyptian Exchange (EGX)

Interview: Mohamed Omran

To what extent does the political environment in Egypt impact stock performance?

MOHAMED OMRAN: Investor sentiment does affect our market performance to a great extent. It is worth mentioning that in the past few years our market has been dominated by institutional investors, which capture around half of the total value traded on the exchange. The political climate therefore also influences our market performance, especially during times of crisis or uncertainty where political events have a great impact on both Egypt's economic performance as a whole and on the stock market in particular. These events are then reflected in an unfavourable investment climate, poor performance and low stock prices.

The bright side is that it does not last for long. The EGX always manages to rebound each time, showing how much confidence investors have in our market. For example, despite the political and economic challenges witnessed in 2013, the exchange concluded the year with 24% gains. This performance is extending to 2014, with a year-to-date increase of 29%. Additionally, the market recorded a rise of almost 43% during the second half of 2013, a performance that led to a cumulative return of more than 87% over the past two years.

What are the factors behind the regained attractiveness of the EGX, and how can it be sustained?

OMRAN: The regained interest in the EGX can be attributed to the positive outlook for Egypt, but also to the market’s increasing liquidity, which has reached an average of LE1bn ($142m) per day, compared to LE200m ($28.4m) in the first half of 2013. Among the measures that can be taken to further this, it is important to host summits for initial public offerings to give companies better insight into listing and its benefits for their growth. Hosting meetings with promising firms in different governorates can also be useful in promoting listings. Most important, new rules have been issued to facilitate new listings on EGX, allowing some approvals related to the process to be attained within 24 hours.

What steps can be taken to diversify the sources of foreign investment in the EGX?

OMRAN: There is definitely a need to diversify investment sources, and for this reason the Egyptian market needs to be promoted abroad. This can be done by continuing to meet with fund managers, member firms, investors and analysts domestically, regionally and internationally to enhance foreign portfolio investment into Egypt. Conducting road shows with investment banks, as well as holding one-on-one meetings with potential institutional investors and funds, also becomes essential. Another efficient tool would be to coordinate promotional campaigns sponsored by the EGX between local investment banks and listed companies.

In what ways could increased cooperation with other stock exchanges benefit Egypt?

OMRAN: There are many ways to enhance cooperation with other stock exchanges, such as signing memoranda of understanding, exchanging experts and encouraging dual listings with other markets, which in turn helps attract investment to ours. The EGX is also working on using its membership in many regional and global organisations to reinforce its position as an active player, especially among Arab and African countries. Last, to increase cross-border trading, the EGX FIX HUB project was launched to provide linkage services for the benefit of Egyptian and international brokers, the first of its kind in the Middle East and North Africa. This will open up new revenue streams and opportunities for both brokers and investors, providing access to new funds and boosting market liquidity.

What are the main barriers to new listings?

OMRAN: EGX offers an alternative way for public companies to meet their financial needs, allowing them to meet the strict conditions for being financed through other channels like banks. However, some barriers hinder them from listing, such as difficulties in abiding by listing rules, especially those on corporate governance.