Margaret Gregory

EGX30 index forecast to hit 14,000 pts

Ahmed Kamel

The main index may test 14,000 points this week as the bull market continues, spearheaded by non-Arabs.

Egypt’s big caps, led by Commercial International Bank (CIB), are forecast to continue their uptrend amid selective buying and high volumes, one technical analyst said.

“However, a fast profit-taking trend may drag the EGX30 index down to around 13,000 points before resuming its uptrend,” said technical analyst Saeed el-Feqy.

He forecast the benchmark index to target 13,600 points after the profit-taking.

The EGX30 surged 399.58 points, or 3.12 per cent, closing at 13,223.9 points last week. The broader EGX 70 and EGX 100 indexes gained 1.9 and 3.71 per cent to 473.1 and 1154.37 points respectively.

Volume totaled LE8 billion ($421 million) last week, up from LE6.2 billion the previous week. Market capitalization rose by LE 14.9billion, or 2.4 per cent, to LE629.7billion, market data showed. Volumes averaged LE1.5 billion last week, according to bourse data.

“Blue chips led last week’s gains amid massive foreign buying. Shares in EFG Hermes reached as high as LE29.16. Talaat Moustafa hit LE9.8 per share,” el-Feqy said.

The market’s heavyweight blue chip – CIB – jumped 2.74 per cent to LE 75.84 per share. CIB’s turnover totaled LE 456.4million, according to market data.

CIB weighs roughly 40 per cent of the EGX30 index, market data showed. The nation’s top big caps also include Global Telecom and Madinet Nasr for Housing and Development.

 Locals, Arab and non-Arabs accounted for 79.4, 8.42 and 12.18 per cent respectively last week.

Arab and non-Arab investors made net purchases worth LE 2.54 million and LE 260.49 million respectively, market data showed.

Non-Arabs have made net purchases worth LE 601.36 million since the beginning of the year. Arabs have made net selloffs worth LE 29.79 million, bourse data showed.

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Streamlining Egypt’s investment landscape

 Analysis by Ahmed Kamel

A new investment bill will be a step on a long road towards improving Egypt’s business climate. However, it cannot on its own guarantee sustainable injections of local and foreign investments in the long run.

Last week, the Sherif Ismail-led cabinet approved a new investment bill in its second draft, and submitted it to parliament for endorsement. The new bill will replace the current Law No. 17/2015, which was passed in March 2015 ahead of the Egypt Economic Development Conference but has borne no fruit in terms of greenfield investment.

The new bill comprises of 115 articles, which financial analyst Ahmed El-Oteify described as a worryingly massive number. “Only specialists will understand it. This is wrong, as investors won’t assimilate it,” he said.

However, legal experts have welcomed the newly drafted bill, but stated that it would need to put an end to red tape, which has taken its toll on the business climate in Egypt over the past 40 years.

For business facilitation

The government is tipped to fully apply a one-stop shop system to facilitate licensing and other official procedures. Consecutive governments since 2002 have failed in putting the one-stop shop system into force.

It is the mentality of officials that must change, said Eissa Fathy, deputy head of the Securities Chamber of Commerce.

“The new bill won’t do anything if the old-fashioned mindset remains the same,” he noted.

 Analysts have called for a one-stop shop, where official delegates offer investors an “all-in-one service, including licensing, registration and property allocation procedures.”

 Free entry and exit of capital and eradicating bureaucracy are needed to attract foreign and local investments through well-designed, transparent and clear-cut legislations for investment, repatriation of profits, bankruptcy and dispute settlement.

Market-friendly environment

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Bankers upbeat about 2017 business outlook

By Ahmed Kamel

Bankers are keeping their crossed that 2017 will be a better year after undergoing tough circumstances in 2016, which is deemed as the hardest in terms of monetary, financial and foreign exchange policies.

The pound flotation on November 3 marked a milestone for local banks, which were entrusted with dealing in foreign currencies at free floated rates for the first time since 2003.

“The pound flotation has restored confidence into the Egyptian economy. Certainly, it boosted foreign investor confidence. It will increase exports too,” said Adnan Ahmed Yousif, Chairman of Al Baraka Bank Egypt.

The Central Bank of Egypt (CBE) free floated the pound versus the US currency, which jumped from LE8.78 to LE19 on the official market. The move was aimed at the uprooting of the black market and speculation on the greenback, economists say.

“The CBE does not interfere in pricing the US dollar anymore. The banks set prices according to the supply and demand mechanism,” said Abdel Hamid Abu Moussa, Governor of Faisal Islamic Bank of Egypt.

“The move has resulted in positive impacts. For instance, foreign investors are buying into treasury bills and bonds again, increasing Egypt’s net dollar inflows. The stock market has gained from the currency float. Foreign direct investment is expected to rise in the coming period,” Abu Moussa said.

In 2016, the central bank sought to curb retail credit in a bid to rein in inflationary pressures. The new measures will slash mortgage financing, car loans and other personal credit products offered by the local lenders in 2017.

It cut large exposure limits, set up a scheme to provide small and medium-sized enterprises  (SMEs) with funding worth LE200 billion at a decreasing fiver per cent rate over the coming four years, set a five per cent cap on bank investments in money market and fixed-income mutual funds.

But the initiative hasn’t borne fruit yet, one economist said.

“Away from the CBE initiative, SMEs in Egypt face a number of obstacles. There’s no tax system or an overall legislative framework for SMEs in Egypt,” said Mohsen Adel, deputy chairman of the Egyptian Association for Investment and Finance.

The CBE also sought to ease risks by the reducing of credit exposure. In early 2016, it reduced maximum limit for loans to customers and all their related members — subsidiaries — to 20 per cent of the capital base down from 25 per cent for each client. The CBE has given banks three-year grace to adjust to this new rule.

According to the new regulations, banks cannot provide loans that exceed 15 per cent of capital base. As for personal loans, the CBE set a lending cap of 35 per cent of a customer’s income after deducting tax and social insurance.

“The Egyptian banks will face tough challenges too in 2017. However, the hardest turmoil is now over with the currency float,” said banking expert Moustafa el-Sherif. 

“The lenders should adjust to the regulations set by the CBE in 2016. Pooling, and better application of risk management policies will boost the banking sector in 2017,” el-Sherif added.

Petroleum sector seen booming in 2017

By Ahmed Kamel

After a year of major oil and natural gas finds, the petroleum sector is expected to boom in 2017, analysts say.

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Economists divided over growth rates in 2017

By Ahmed Kamel

Economists are divided over the nation’s economic growth outlook in 2017. While some of them expect the government to achieve its financial and monetary objectives, others say the exchange rate woes may hold back growth next year.

Finance Minister Amr el-Garhy said the government would target a five per cent growth, and to slash unemployment to 11 per cent of labor force in the fiscal year 2017/18.

Egypt’s gross domestic product (GDP) grew by 4.3 per cent in the fiscal year 2015/16, down from 4.4 per cent a year earlier, according to Planning Ministry data.

Egypt’s fiscal year begins on July 1. The nation’s GDP totaled LE 2.708 trillion ($142.5 billion) in the fiscal year 2015/16, Planning Ministry data showed.

“The government has overestimated growth forecasts for 2017. It has taken some measures which will negatively affect consumption, which is the main growth driver in Egypt. Consumption accounts for around 95 per cent of economic growth in this country,” said economist Medhat Nafie.

“How come the government eyes lower state budget deficit in 2017/18 without higher growth rate of GDP?” wondered Nafie.

The government said it would target a state budget deficit of 9.5 per cent of GDP, down from 12.2 per cent in the fiscal year 2015/16. It also eyes the reduction of sovereign debt to 94 per cent of GDP, down from 98 per cent at present. A number of economists said the pound would undergo more pressures in 2017, casting a shadow on the state budget. The Finance Ministry has not set the US dollar rate to be a basis for drafting the nation’s 2017/18 budget.

One source said the ministry would set the greenback rate used in drafting the budget in April 2017.  

“A Fitch report said Egypt would face tough challenges in 2017. The government’s economic reform program will not bear fruit in the short term. Social pressures will require the government to act fast,” said Mohsen Adel, deputy chairman of the Egyptian Association for Investment and Finance.

Earlier this month, Fitch Ratings affirmed Egypt’s senior unsecured foreign- and local-currency bonds at ‘B’. The rating agency also kept the country’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B’ with “a stable outlook”.

“We expect greater fiscal consolidation in the fiscal year 2018, with the budget deficit narrowing to nine per cent of gross domestic product (GDP),” Fitch said in a statement on its website.

To overcome the dollar crunch, Adel urged the government to launch investment incentives in a bid to create jobs and inject hard currency into the economy.

Egypt is seeking to secure higher inflows of foreign direct investment to repay its international dues.

Economist Hany Tawfik, chairman of Cairo-based investment and private equity firm Union Capital and former head of the Egyptian Private Equity Association, forecast a surge in foreign direct investment in 2017.

He said Egypt would net higher inflows of remittances by Egyptian expatriates, citing that the FX black market took a blow after the currency float on November 3.

Stocks heading to fresh highs in 2017

By Ahmed Kamel

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