EGX closed up 11.4% in 2Q, and down 4.12% in June

The EGX closed 2Q in the green, despite a June selloff that ate into two months of gains. The benchmark index rose 11.4% over the quarter to close at 50.5k points, according to the bourse’s latest quarterly report (pdf), with travel and education the standout sectors. The bulk of the rally came from April and May, with momentum cooling in June as the EGX30 gave back 4.12% on profit-taking before the month was out, data from the monthly report (pdf) shows.

Why June cracked after a good April-May run: “This is entirely natural after a strong rally,” Sameh Gharib, capital markets expert at Tycoon Securities, tells EnterpriseAM. “Following [the April-May] rise, profit-taking around the second half of June is what ultimately pulled the index down,” he says. “June coincides with mid-year and semi-annual portfolio closures. It’s also a period characterized by index weight rebalancing, which naturally prompts institutions to shift or swap positions at certain price points,” he adds.

Breadth carried 2Q more than the blue chips did. The EGX70 climbed 23.68% last quarter, while the EGX100 added 21.32%, both comfortably outpacing the EGX30. “Small and mid-cap stocks are much easier to move because their freefloat is significantly lower than that of large-cap stocks. Consequently, they do not require massive buying power to be pushed upward, as opposed to blue-chip stocks,” Gharib tells us.

The turnover story: Trading topped EGP 6.9 tn during the quarter, with the EGX’s market capitalization climbing 13.7% to EGP 3.68 tn. Equities accounted for 8.8% of traded value, while bonds and T-bills dominated activity with the remaining 91.2%.

Who pulled their weight: Travel & leisure stocks (+63.6%) and education services (+62.6%) carried the 2Q rally, followed by real estate names (+35.6%) and contracting and construction engineering (+32.7%). Basic resources was the only sector in the red last quarter, down 10.4%.

Local institutions and individuals were the market’s only net buyers, picking up EGP 9.4 bn and EGP 2.1 bn worth of equities, respectively. Foreign and regional institutions, meanwhile, were net sellers to the tune of EGP 4.8 bn and EGP 5.1 bn, while foreign and Arab retail investors offloaded another EGP 298.3 mn and EGP 1.4 bn.

Why regional investors sold harder than their foreign counterparts: “Most Arab investors who operate in the region keep the bulk of their portfolios in the Gulf, with smaller allocations in Egypt. If they faced margin calls in their home markets, they liquidated assets in external markets, especially where they had made good profits, to cover their leveraged positions back home.” Unlike a global emerging-markets investor who can absorb a Middle East drawdown elsewhere in their book, he adds, regional investors “are heavily concentrated in the region and are directly exposed to its economic shocks.”

What brings foreign investors back?

Easing geopolitical tensions: “In the short-term, this is largely out of our hands. It depends heavily on the stabilization of geopolitical events in the Middle East,” Gharib says. Structurally, he points to lost ground. “15 years ago, Gulf markets were not as open or accessible to foreign investment as they are today. Egypt was the primary destination for foreign investors looking at the region. This is no longer the case.”

A market depth problem: “We suffer from a lack of listed large, high-value companies, and several large-cap companies have exited the market, shrinking its size,” which Gharib argues is what the state’s IPO pipeline is meant to address.

Zeroing in on June

While the EGX30 cooled in June (-4.1%), the broader market held up. The EGX70 etched out a 5.8% gain, and the EGX100 added 3.2%, meanwhile, the EGX33 Shariah dipped 3.3% roughly tracking the benchmark. The results make March — due to the outbreak of the Iran war — and June the only red months YTD.

Market cap followed the blue chips down. Total market cap fell 2.1% m-o-m in June to EGP 3.68 tn, despite a rise in trading value to EGP 204.8 bn in June up from EGP 172.7 bn in May. “This high volume does not necessarily indicate a broad market sell-off; rather, a significant portion of it represents a change of hands between institutions adjusting their stock weightings and allocations,” Gharib says.

Shipping & transportation services (+12.6%) was June’s best performing sector, followed by contracting and construction engineering (+7.8%) and industrial goods, services and automobiles (+6.7%). Basic resources was the worst performer by a wide margin, down 15.1%.

June’s trading flows mirrored a broader trend: Locals were the only net buyers last month. Egyptian institutions bought a net EGP 3.4 bn, while foreign institutions sold EGP 2.1 bn and regional institutions offloaded EGP 1.8 bn. Local retail investors were net buyers to the tune of EGP 726.1 mn, even as regional retail sold EGP 167.7 mn. Foreign retail was close to flat, selling just EGP 5.4 mn.

Looking ahead: “The most significant upward movements typically occur in 4Q,” Gharib says. “3Q is generally characterized by a phase of accumulation. The market tends to move sideways as it builds up new buying power, or takes a breather before rising,” he adds. Egyptian institutions are already buying, he notes, but a large-cap rally needs foreign and Arab institutions to at least slow their selling pace — outflows right now are concentrated in the heaviest large-cap names, which is what's keeping the blue chips range-bound.

IN OTHER EGX NEWS

The bourse plans to meet with listed companies to discuss reviving the Global Depository Receipts (GDR) market, as it looks to draw foreign investors and deepen liquidity in local stocks, EGX Vice Chairman Mohamed Sabry tells Al Borsa. Only six companies — CIB, Lecico, Madinet Misr, Telecom Egypt, EFG Holding, and Orascom Investment — currently have GDRs trading on the London Stock Exchange.

A play for foreign money: A GDR is a London-listed instrument that gives foreign funds exposure to an EGX-listed company without holding the local shares directly. That matters for capital that would otherwise sit out — either due to custody friction, index eligibility, or internal mandates.