The EGX30 fell as much as 7.5% during the first few minutes of trading yesterday, before paring back losses to end the day down 4.6%, as regional tensions due to the worsening conflict between Israel and Iran led to market jitters. All indices were in the red at market close, with the EGX losing EGP 94 bn of its market value by the closing bell. Retail investors were net buyers, with Egyptian individuals being the top buyers at EGP 170.6 mn, while institutions were net sellers, with foreign institutions being the biggest sellers at EGP 142.3 mn.

All EGX30 constituents ended the session in the red, with the benchmark index’s biggest losers including EFG Holding (12.4%), Orascom Development Egypt (11.1%), and GB Corp (9.4%), while the smallest declines included Alexandria Containers and Cargo Handling (-0.04%), Fawry (-0.9%), and Telecom Egypt (-1.6%).

Foreign investors drove capital market outflows as the day’s net sellers, selling some EGP 140.4 mn-worth of equity holdings, according to market data. Investors are looking to mitigate risk and hedge against the impact of a potential escalation into a full-out war on their investments, and are looking to withdraw liquidity from high-risk financial instruments to be redirected into safer investments, head of trading at Arabiya Online Mona Mostafa told EnterpriseAM.

Déjà vu? Yesterday’s market performance was an expected outcome, with markets expected to react to external developments, as was the case following the outbreak of the Russia-Ukraine war, for example, Mostafa noted.

But remember, this is an expected part of the script — and is not yet reason to panic. HC Securities’ Nemat Choucri and Al Ahly Pharos’ Hany Genena both told us earlier this week that a partial exit and “some panic selling” from foreign investors is to be expected because of concerns related to FX stability, but a full-blown exit isn’t in the cards just yet. Foreign investors would have to begin seeing warning signals for “a full halt in tourism revenues, remittances, or other inflows” to begin truly exiting the market — which as it stands seems incredibly unlikely.

The sectors that were hardest hit by yesterday’s market decline included non-bank financial services, banking, real estate, and petrochemicals. These are typical showings, since they’re heavily affected by the value of the currency, which affects their price fluctuations, Mostafa explained. Industrial stocks — particularly those in the fertilizer industry — also took a hit as a result of cuts in natural gas supplies to some industrial activities following the halt in supplies from Israel’s Leviathan field, Pioneers Holding’s head of brokerage Amer Abdel Kader told EnterpriseAM. Abou Kir Fertilizers, Mopco, and the International Company for Fertilizers and Chemicals were all down at the end of trading yesterday, while EgyFert bucked the trend to close up 16.9%.

Natural gas supply cuts cast their shadow, but it’s not a new challenge. With natural gas shortages previously bringing fertilizer players face-to-face with operational disruptions — including some companies temporarily closing down operations — several companies in the industry have already worked on tapping alternative energy sources to ensure operational continuity, Mostafa said. The repetition of these natural gas supply cuts has essentially normalized their effect on the market, meaning most stocks are unlikely to have a significant negative reaction. However, a protracted conflict will cause the country to be increasingly exposed to industrial, economic, and social risks as fuel and energy prices rise, impacting industry and driving inflation to accelerate, Mostafa noted.

The EGX was also not alone in having a tough day, with indexes in the region also ending the day in the red, albeit with smaller drops. The Dubai Financial Market benchmark fell 1.9%, the Abu Dhabi Securities Exchange benchmark was down 1.3%, and the KSA’s Tawadul benchmark finished 1.0% lower at the end of trading. We will also soon get an insight into conflict’s effect on regions outside of the Middle East set to begin trading today, as investors assess certain companies' exposure and weigh up the impact of the recent rush into energy futures and safe-haven assets like gold.

How much longer can we expect the market to be in the red? Most analysts we spoke with don’t expect the volatility to last beyond a few days, with the duration of the impact entirely dependent on how quickly Israel and Iran will come to the negotiating table. The EGX could recover as early as today if the trading session progresses without a fresh round of attacks or any significant escalation in the conflict, Genena said, pointing to several equities that pared back intraday losses yesterday. On the more pessimistic side, Mostafa expects the market recovery to take a bit longer, penciling in more declines before the curve gradually begins to reverse upwards.

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