The Egyptian Stock Exchange is bleeding

Constant bleeding, huge losses of billions of pounds, and delaying the offering of companies’ shares… this has been the case of the Egyptian Stock Exchange since the beginning of 2020 until now, as the stock market suffers from a loss of market capitalisation, and the collapse of stocks and indices. The reasons for the losses of the Egyptian Stock Exchange are multiple, but experts mentioned that the most important of them is the market’s impact on the repercussions of the coronavirus, and the resulting tourism activity, partial embargoes, and the suspension of air traffic, in addition to tensions related to the Renaissance Dam, and the possibility of military intervention in Libya. Over the past seven months of the year 2020, the Egyptian Stock Exchange incurred losses amounting to EGP 122.5 billion ($7.7 billion), as the main index of the market, EGX 30, fell 1.5 per cent in one month, while it has fallen by 24 per cent since the beginning of the year. The Egyptian market witnessed a wide sale by foreign investors in recent months, amounting to about $21.6 billion, during the past two months of March and April, in the largest wave of investments exit in more than six years.

Stock market losses

On March 1, the shares and indexes of the Egyptian Stock Exchange witnessed a sharp decline when the transactions of the first sessions of the week were closed, supported by accelerated sales, while trading was halted for half an hour in the middle of the day.

At that time, the market capital of the shares of listed companies lost about EGP 32.1 billion, to close at EGP 634.9 billion, in a daily loss described as the largest since November 2012 as a result of the terror that accompanied the spread of the coronavirus. This happened again in mid-May when the market capital lost during one week about EGP 5.5 billion, as most indicators fell, amid the trend of major Egyptian institutions for the intensive sale of some stocks, which led to a significant decline.

The ASE dealings concluded the year 2019 with average losses of EGP 41.5 billion of the market capitalisation of shares of companies listed on the stock exchange, which ended the year at the level of EGP 708.2 billion. A decrease in the indicators reached 7.1 per cent, compared to EGP 749.7 billion at the end of 2018.

Offering failed

According to Independent Arabia, the stock market losses during 2019 came in complete contrast to what happened in the three years that followed the decision to liberalise the exchange rate of the pound against the US dollar. Some summarised the reasons for the losses extended since the beginning of 2019 as due to “government mismanagement.” Several voices said the market needs new companies, in order for the indicators to be again painted in green, and liquidity to be poured into the market.

Some weakened this hypothesis with the last offering the exchange received, as it did not succeed in moving the market, on the contrary, the stock witnessed a decline during its first trading days while the stock market continued to decline. The Tenth of Ramadan for Pharmaceutical share (RMDA) has offered 49 per cent of its shares on the stock exchange at a price of EGP 4.66 per share.

RMDA’s shares fell and dragged all the shares of the companies listed on the stock market down, which raised many questions about the previous steps of the offering.

The army’s companies

Amid the repeated government announcement about offering companies on the stock exchange this year, then putting off the offering, and then the collapse of shares and the failure to move the market after offering one of the companies, the Egyptian stock market bleeding continues.

Reuters said in a report that economic analysts have questioned the government’s ability to implement the public sector offerings programme on the stock exchange within the announced timeframe, and analysts accuse the government of invoking false reasons to postpone the proposals, such as waiting for the appropriate timing of the offering and the ability of the market to absorb it. For his part, Adel Kamel, Chairman of the Board of Directors of al-Ahly Financial Investments Company, stated in press statements that the failure of offering companies on the stock exchange to turn the market up and the lack of response by the stock exchange to new proposals is a double problem, linked to several factors, some of them related to the market itself, and another to government aspects, and the third the companies offered.

The crisis of propositions and the aversion of investors come while Abdel Fattah al-Sisi stated, at the end of last October, that it is important for the companies of the armed forces to participate in the Egyptian Stock Exchange and its offerings so that the Egyptians can participate in these companies with a high success rate.