US downgrade and uncertainty affect sentiment
Egypt’s stock exchange has been one of the worst performing bourses in the region following the overthrow of Hosni Mubarak’s regime in February and the 6 August downgrade of the US sovereign rating by credit rating agency Standard and Poor’s.
Since the beginning of the year, the Egyptian Exchange (EGX) has lost about 26 per cent of its value. The benchmark EGX30 is down by 37 per cent, trading at 4,600 points compared with the highs of about 7,200 points in early January.
The global sell-off triggered by the Standard and Poor’s downgrade saw investors channel their money to safer investments away from the political and economic uncertainty of the Middle East. Egypt’s EGX30 was one of the worst hit, closing almost 5 per cent lower at 4,478 points on 7 August, the day after the downgrade.
Trading was suspended on 9 August for half an hour to prevent the EGX30 from collapsing as it reached the lows seen earlier in the year.
The 18-day revolution that ended on 11 February with Mubarak’s resignation has been one of the more peaceful in the region, particularly when compared to the bloodshed that continues in Libya and Syria. But the country is still struggling to stimulate its economy. Dissatisfied Egyptians continue to voice their frustrations at protests, with the most intense in July, which saw the EGX fall to lows of 4,939 points.
Reactions surrounding former president Hosni Mubarak’s trial have left investors apprehensive.
“It is not the trial itself, but the outcome and the people’s reactions to the verdict that will affect sentiment,” says Radwa el-Swaify, analyst at Cairo-based investment bank Beltone Financial.
The EGX gained slightly this past week as companies announced second quarter results. The EGX30 closed 0.41 per cent higher to 4,644 on 15 August after a smooth day at Mubarak’s trial.
While most of the results announced were an improvement from the first quarter results of this year, they are still worryingly lower when compared with the previous year.
The worst hit sectors were tourism and real estate. The fall in tourism continues its rippling affect not just on the industry, but the country’s economy as a whole. The average hotel occupancy rate is about 31.6 per cent at the moment.
The Egyptian Company for Tourism Resorts, one of the most active stocks on the exchange reported a net profit of $56,000 for the first half of 2011, down from $267,000 in the same period last year.
Orascom Development, one of the largest real-estate firms reported a net loss of $17.5m for the first half of the year, compared to a net profit of $50.9m in the same period in 2010.
Egypt’s third-largest listed company Orascom Telecom Holding, owners of mobile operator Mobinil recorded a second quarter loss of $58.5m after suffering from a boycott of its services and for having to pay out large sums in compensation to its subscribers for suspension of services this year.
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