MARKET IN FOCUS: CASE: A special Case

With bourses across the region languishing as the summer lull ran into Ramadan, the Cairo & Alexandria Stock Exchanges (Case) continued on what seems to be a non-stop climb since August. The index broke a series of all-time highs in the first two weeks of October, buoyed by healthy investor sentiment.

The Case 30 index of the top 30 companies showed only slight signs of slowing on 17 October when it closed 0.4 per cent down on the previous day, at 9,020 points. The index is up 26 per cent since the beginning of the year.

Volumes have been healthy. Average daily trading so far this year is up 12 per cent on the average for last year, at £E 950 million ($171 million) a day. Reduced trading hours during Ramadan concentrated trading activity.

Total volumes from the beginning of the year until September have already surpassed those for 2006 with 9,270 million shares changing hands, with a value of £E 230,595 million ($41,573 million).

Volumes and prices have been boosted by merger and acquisition rumours in the banking sector, including that of Commercial International Bank and Arab African International Bank that have since confirmed the move and started the due diligence process.

The Capital Market Authority approved National Bank of Kuwait's offer to buy 100 per cent of Al-Watany Bank of Egypt on 10 October. The £E 5,700 million ($1,028 million) bid prices the bank at a price/book ratio of 4.9, which is expensive compared with the banking sector average of 2.5. 'This forced a rally in banking stocks and the rest of the market followed,' says a Cairo-based broker.

Banking stocks are the latest sector to drive the rise in the market, which was powered by trading

in telecommunication stocks earlier in the year, followed by real estate companies benefiting from land price hikes. The rally has been sustained by foreign investment from the Gulf, which accounts for 10 per cent of trading, and US and European investors, which account for 15-20 per cent of trades.

Valuations on the exchanges are similar to its peers in the Gulf, at a price/earnings ratio of 14. As yet, no blue chip company has issued third-quarter earnings reports, which are, despite their expected 10-20 per cent rise, likely to impact the market.

Speculation continues regarding the launch of a second exchange for small and medium-sized companies that was expected at the end of October. Listed companies will have a minimum capital requirement of £E 500,000 ($90,145) and a maximum of £E 25 million ($4.4 million). As yet, no details have been released on the number of listings, or whether small companies will be forced to move listing from Case to the new exchange.

The launch of a new exchange could boost trading on the Case as less active small stocks delist, say analysts. Currently, there are 515 companies listed on Case but only 307 are traded. Bank of Alexandria is expected to launch its long-awaited initial public offering (IPO) at the end of 2007. Until then, no new listings or IPOs are expected.