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Smells like a rally
The period from July 16 to August 15 saw the market boom, reaffirming
the positive turn it took at the onset of the year. Indeed, the
broad-based Hermes Financial Index and the broader CIBC Index added
4.9 percent and 2.2 percent to close at 16383.04 and 98.15, respectively.
The current period’s performance can be attributed to two
main factors: the recent cabinet reshuffle; and the relatively strong
financial results posted by certain listed companies. While the
first of these was expected within the investment community, lack
of information about its timing clouded investors’ perceptions
until its announcement, which then served as a good omen for the
bourse.
The cabinet reshuffle is important for a number of reasons. First,
some of the National Democratic Party (NDP)’s old guard were
replaced by younger political figures. Second, the inclusion of
businessmen as ministers for the first time since the revolution
of 1952 points to a change in the mindset of the government towards
the private sector. Both Rachid Mohamed Rachid and Ahmed El Maghraby
– ministers for industry and tourism – should help on
this front. Third, the establishment of the Ministry of Investment
as an independent ministry concerned with non-banking institutions
supports the new emphasis on economic and structural reform. The
Cairo & Alexandria Stock Exchanges (CASE) and the Real Estate
Mortgage Authority (REMA) have also seen changes at the top, with
Sameh El Torgoman moving from heading the CASE to the REMA, replaced
by Mohamed Abdel-Salam, who remains head of Misr for Clearing, Settlement
& Central Depository (MCSD). The appointment of Maged Shawky
as vice chairman of the CASE, meanwhile, underlines the government’s
commitment to bring new financial products and services into the
market, such as derivatives and margin lending.
Turning to share performance, the cement sector came out on top,
thanks mainly to the recent run on cement prices, which means higher
margins for cement companies with costs mainly in Egyptian pounds.
ASEC Cement, National Cement, Sinai Cement, Torah Cement and Suez
Cement all ranked high in the top 10 performers for the period,
with 42 percent, 30 percent, 26 percent, 22 percent and 19 percent
increases, respectively. Even OCI, which is not yet a pure cement
play, benefited from the rally on cement, due in part to news of
a share split.
Elsewhere, Egyptian American Bank (EAB) was in the limelight as
its shares jumped to £E 68.42, up 26 percent. The bank reported
strong first-half 04 financial results with £E 92 million
in profits, compared to only £E 44 million a year earlier.
Other banks saw their shares advance in light of their first-half
results too. NSGB and CIB posted 8-percent and 5-percent rises to
£E 39.01 and £E 25.47, respectively. The banks reported
20-percent and 33-percent higher profits, of £E 108 million
and £E 231 million, over the previous year.
Meanwhile, Egypt’s two mobile operators gave mixed performances
for the period. While MobiNil shares closed the period 4 percent
up, at £E 94.75, Vodafone Egypt shares slipped 7 percent to
£E 37.94 with relatively thin trading volumes. It is worth
noting that both operators have now rebalanced their prepaid tariffs,
offering their customers the choice to migrate between different
price plans according to their average usage and needs. Such rebalancing
is expected to translate into higher market penetration, offsetting
the lower average usage expected with more customers coming from
lower income brackets.
The market, nevertheless, started to feel the brunt of profit
taking the week after the period ended, though this should not cause
too much alarm. It is evident that the new cabinet has inherited
a to-do list from its predecessor, most of which relates to the
state of the economy. While things have not improved dramatically
since the reshuffle, the recent rally confirms the positive sentiment
in the market, whose mood will be affected by the performance of
the new cabinet. Hopefully, expectations will be met, if not exceeded.
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