Egypt’s stock market climbed on Thursday after the central bank floated the currency, a step which could eventually resolve the country’s hard currency shortage.
Main index, EGX 30 soared 3.35 percent, to 8810.51 points, the highest close in 17 months after the government allowed the currency to weaken as much as 38 percent.
Authorities hope that by persuading investors that the Egyptian pound is finally fairly valued, the devaluation will draw billions of dollars into Egypt, and encourage hundreds of thousands of Egyptians living overseas to send money home.
“We see the move as an encouraging one for investors to re-tap Egyptian assets, especially those in local currency,” strategists at EFG Hermes said in a note.
The devaluation is expected to cause a rise of inflation, which will hurt consumer spending power, and it was accompanied by an interest rate hike of 3 percentage points. Egypt’s dependence on imports means a weaker currency may not lead to much of an export boom.
For these and other reasons, many foreign fund managers said they were not rushing into Egypt. Maarten-Jan Bakkum, investment strategist for emerging markets at Hague-based NN Investment Partners, said the currency float offered opportunities but he would err on the side of caution.
“First the currency has to stabilise and they have to fix their fiscal problem. The deficit is in double digits, the economy is weak because of the tourism crisis and Egypt is very sensitive to the weakness in global trade as that impacts Suez Canal revenues.”
The currency float is expected to clear the way for the International Monetary Fund to reach a final agreement on extending a $12 billion loan to Egypt. Mohamed Eljamal, managing director of capital markets at Abu Dhabi’s Waha Capital, said the market was eager for the announcement of the loan and wanted to see whether the devaluation eliminated the gap between the official and black currency markets.
Other indices; EGX50 EWI index surged 1.70 percent, to 1370.68 points; EGX20 hiked 1.97 percent, to 8745.07 points.
Mid- and small-cap index EGX70 added 1.83 percent, to 350.73 points. Price index, EGX100 also edged up 1.68 percent, to 822.33 points.
Market Cap
Market capitalisation gained 11.5 billion Egyptian pounds ($835 million), to record 428.709 billion pounds during the closing session of Thursday.
Turnovers
The bourse’s trading volume reached 503.824 million securities, with turnovers, closing at 2.180 billion pounds, exchanged through 39,660 transactions.
Also during the closing session, 181 listed securities have been traded in, 89 declined, 65 advanced; while 24 kept their previous levels.
Investors’ Activities
Non-Arab foreign and Arab investors were net buyers controlling 11.05 and 7.6 percent respectively of the total markets, with a net equity of 270.084 million pounds and 18.148 million pounds, respectively, excluding the deals.
On the contrary, local investors were net sellers capturing 81.35 percent of the total market, with a net equity of 288.232 million pounds, excluding the deals.
