EGX30 gained 2.79% in 3Q, but September gave back most of its July-August run, with mid-caps falling the hardest

The EGX30 etched out a modest gain in 3Q, closing the quarter up 2.79% at roughly 51.9k points, according to the bourse’s latest quarterly report (pdf), against an 11.4% rally in 2Q. September slowed the overall gain, with the index shedding 5.4% over the month, dragged down by building materials stocks, data from the EGX’s latest monthly report (pdf) shows.

Why the quarter’s gain shrank to a quarter of 2Q’s: “The most significant upward movements typically occur in 4Q,” Sameh Gharib of Tycoon Securities told EnterpriseAM in July. “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 said.

Small- and mid-caps outran the benchmark for a second straight quarter, and the spread widened. The EGX70 climbed 20.14% over the quarter while the EGX100 EWI added 17.19%, both leaving the EGX30 far behind. The gap was 23.68% and 21.32% against 11.4% in 2Q.

Meanwhile, trading topped EGP 7.5 tn during the quarter, up from EGP 6.9 tn in 2Q, with the EGX’s market capitalization climbing 10.3% to EGP 4.06 tn. Equities accounted for 11.14% of traded value, while bonds and T-bills took the remaining 88.86%. Volumes reached 212.7 bn securities across 17.4 mn transactions, against 154.4 bn and 12.1 mn in 2Q.

Retail now accounts for close to four-fifths of equity turnover. Retail investors traded EGP 1.23 tn in listed stocks, excluding deals, against EGP 331.2 bn for institutions. Thndr Securities Brokerage took 24.0% of value traded and 13.7 mn of the market’s 17.3 mn trades on its own.

Seventeen of 18 sectors finished the quarter higher. Energy and support services (+41.8%) and textiles and durables (+25.3%) led the 3Q rally, followed by contracting and construction engineering (+21.3%) and travel and leisure (+17.9%). Food, beverages, and tobacco was the only sector in the red last quarter, down 5.8%, with real estate close to flat at +0.2%.

The buyer mix also saw a big shake-up: Regional institutions turned net buyers of EGP 1.9 bn in listed shares during 3Q, after net selling EGP 5.1 bn in 2Q. Local institutions went the other way, selling a net EGP 3.6 bn after buying EGP 9.4 bn the quarter before. Foreign institutions remained net sellers, offloading EGP 2.2 bn, though that’s less than half the EGP 4.8 bn they sold in 2Q. Meanwhile, local retail investors were the biggest net buyers, picking up EGP 5.1 bn.

What’s keeping foreign institutions out isn’t the macro, Randa Hamed, managing director at Okaz Asset Management, said in an interview with Asharq (watch: runtime: 9:00). FX flexibility and the ability to repatriate dividends and capital gains have improved. “What it lacks is the large companies, a market with stock to offer, and better mechanisms,” she said. “The mechanisms have started, but they are still in their early stages,” she added, pointing to derivatives and short-selling.

September in focus

The EGX30 opened September at 54.9k points, touched a 50.9k low mid-month, and closed at 51.9k. The broader market fell harder, with the EGX70 off 10.85% and the EGX100 EWI off 9.12%, reversing the pattern that held through July and August. EGX T Bonds was the only index to finish the month in the green, up 1.42%.

Mid-caps gave back what the quarter had handed them. EGX70 constituents lost 22.0% of their market value over September against a 3.8% drop for EGX30 names. Total market cap fell 5.4% m-o-m to EGP 4.06 tn, while turnover in listed stocks thinned to EGP 266.7 bn from EGP 300.4 bn in August.

Energy and support services (+3.8%) was September’s best-performing sector, followed by IT, media, and communication services (+3.3%) and travel and leisure (+0.9%). The other 13 sectors closed in the red. Building materials was the worst performer by a wide margin, down 20.9%, while the health care and pharma sector and the food, beverages, and tobacco sector both shed 12.4%. Real estate fell 10.3%.

The month’s flows ran against the quarter’s. Regional institutions bought a net EGP 3.5 bn and foreign institutions EGP 302.5 mn, while local institutions sold EGP 8.0 bn, more than double what they offloaded across 3Q as a whole. Local retail stayed on the bid, picking up EGP 4.4 bn, as regional retail sold EGP 251.3 mn and foreign retail bought EGP 48.4 mn.

Some of that institutional selling may be retail money in disguise. Equity funds have proliferated, and their unitholders are overwhelmingly individuals, Hamed told Asharq. “At the end of the day, the investment manager, the fund manager, has to meet the redemptions, and even the funds are now on an app,” she said. “With the press of a button, [the investor] sells his certificates, and the investment manager is forced to sell.”

Whether September is a correction or a turn comes down to the fundamentals, Hamed said. “A change in direction would mean the fundamentals have changed,” and they haven’t, she said, pointing to foreign reserves above USD 57 bn and net foreign assets at banks above USD 28 bn.