With yet another, and seemingly more realistic, stock market re-opening date, concerns are many and speculations even more. With the Egyptian bourse last open on 27 January, when it was closed after a 16 percent (LE70 billion) drop in two days, Wednesday will be the first day of trading in 39 business days.
That said, Khaled Serry Seyam, chairman of the EGX, has tendered his resignation, Moody’s has just downgraded five of Egypt’s most prominent banks, and MSCI earlier stated it would review the Emerging Market status of the EGX if it remained closed for more than 40 days.
Last night’s Egyptian TV talk shows encouraged Egyptians to invest in the stock market by gathering money from friends and taking it to the bank to invest in EGX portfolios. Prime Minister Essam Sharaf urged Egyptians to invest in the stock market as a means of supporting the EXG when it re-opens.
But foreign investments are the concern voiced by the financial sector. With an average of 25 percent foreign investment in the EGX (based on market capitalization), the recent downgrades by Moody’s, along with earlier sovereign credit rating downgrades by S&P and Fitch Ratings, and reviews by the MSCI mean foreign mistrust in the Egyptian stock market may only just now be solidifying.
“Egypt has a long history as being the most transparent of the Arab stock markets,” says Angus Blair, Head of Research at Beltone Financial. Blair believes that the lack of information surrounding the situation of the EGX and the extended period of the closure have not reflected this historical precedent. As for speculations, none can really be made until the stock market opens tomorrow.
"There's very limited visibility as to how the markets will react tomorrow," explains Blair,. However, he affirms that Beltone Financial continues to maintain its favorite stocks in the EGX.
With the political scene settling into what seems to be a more structured stage of Egypt’s new state, this still needs to be translated into a more visible improvement in rating agencies’ and foreign indices’ concerns about Egypt’s economic and political outlook.
As of today, Moody’s has downgraded the foreign-currency deposit ratings of five Egyptian banks, National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank and the Bank of Alexandria, by one notch, from B1 to Ba3. Local-currency deposit ratings were downgraded similarly, by two notches, from Ba3 to Ba1, for the state-owned National Bank of Egypt, Banque Misr and Banque du Caire, and by one notch for the Commercial International Bank . The local currency deposit rating of Bank of Alexandria was confirmed at Ba1, reflecting parental support from Bank Intesa Sanpaolo.
The downgrades apparently come in light of a downgrade of Egypt’s banking sector as a whole and do not necessarily depict an actual drop in local currency deposits inside the country. Although concerns over potential ‘capital flight’ have died down considerably, Moody’s still expressed worry over Egypt’s current political turmoil.
MSCI, one of the largest global indices and tracked by many global asset managers, lists Egypt both in its country index as well as in an index called ‘Emerging Markets’. One step up from ‘Frontier Markets’ (where countries like the UAE and Qatar are now listed), the Emerging Markets status gives the EGX a certain level of credibility that is comforting and necessary to attract foreign investors.
But with the EGX closed, investors have become increasingly insecure about their Egyptian investments, and MSCI has made it clear that if the EGX remains closed for more than 40 business days, its status in the Emerging Markets index will be under review — possibly endangering its status in MSCI’s other indices. MSCI has also made it clear that merely reopening in time is not enough to keep the EGX from review, and that consultations will be entered into with investors about their position towards the security of the Egyptian Stock Exchange.
The resignation of Seyam was a decision made in protest at the continued closure of the market, according to media sources. In fact, most opinions coming from financial analysts in the market would agree that the decision to reopen is long overdue. Government officials have implied that the outcome of the elections has grounded the political turmoil substantially and that now, and perhaps only now, can they safely open the EGX. Prime Minister Sharaf has appointed Mohamed Abdelsalam, currently the head of state-run clearing house, Misr for Central Clearing, Depository and Registry, to supervise the stock exchange for six months, replacing Seyam.