EGX30 extends its losing streak

Here are the stories driving the day both at home and abroad. The EGX30 fell 3.56% at today’s close to 49.2k points, its lowest since early April according to market data, leaving Banque Misr to price Banque du Caire’s (BdC) IPO tomorrow into a market that’s gone sharply the wrong way since its books opened. In USD terms, the index fell 4.45% (the currency compounding the loss). It’s now up 17.7% YTD, against 22.1% at Thursday’s close. The index came off its lows late, after trading as low as 48.3k.

“This is panic selling,” Randa Hamed, managing director of Okaz Asset Management, tells EnterpriseAM. Young investors who came in through online onboarding and trading apps “probably have not witnessed some pullbacks since the beginning of the year,” she says, putting the retail base above 600k. Fundamentals haven’t changed, in her reading — only the geopolitics have. “The word ‘war’ is the most feared word for investors.”

One analyst calls it a correction instead: Investors selling down existing positions to freeup liquidity for the recent big-ticket IPOs, profit-taking after the index peaked near 56k in mid-September, and escalating tensions in the Red Sea and Bab El Mandeb have all weighed on the market, capital markets analyst Hossam El Ghayesh tells EnterpriseAM.

Retail investors have been particularly quick to cash out ahead of IPO subscriptions, El Ghayesh tells us, with BdC’s retail offering still open after the institutional book closed. He also points to the relatively thin trading volumes during the decline, compared with the record turnover seen during the rally, as a sign that investors are taking gains rather than pulling their money out of the market altogether.

Foreigners weren’t the sellers (of equities) last week. They were small net buyers of listed stocks, excluding block trades, every session from Sunday through Wednesday. The exit is largely concentrated in debt, with foreign and regional investors net selling USD 1.13 bn of T-bonds and T-bills Monday to Wednesday, the pressure that took the USD through EGP 55 for the first time on Thursday.

The pressure hasn’t let up: The USD hit a fresh high today, with the CBE quoting EGP 55.75 for buying and EGP 55.89 for selling, and Al Baraka, Crédit Agricole, Alexbank, and ADIB at 55.80 and 55.90. Interbank transactions to fund foreign exits from the secondary debt market ran to USD 3.1 bn last week, a banking source tells us.

We’ve been here before: Global inflation, rising energy prices and foreign investors pulling money out of emerging markets have put Egypt under pressure before, economist Walid Gaballah tells EnterpriseAM. The resulting foreign portfolio outflows are once again weighing on the EGP, but he sees little cause for concern, arguing that the CBE and Finance Ministry have gained considerable experience managing such episodes.

Gaballah also sees the EGP’s fluctuations as a natural consequence of Egypt’s shift to a flexible exchange rate, which he argues would have been far more costly to abandon. Currency swings and stock market volatility are part of operating in an economy exposed to international markets, he said.

BUT- Banque Misr isn’t flinching. It upsized BdC’s offer to 45% late last week, adding supply into a market that’s just broken 50k, with final pricing due tomorrow. The EBRD and IFC have signed on to the enlarged offering, joining four foreign funds that cornerstoned USD 256 mn, and the institutional book sold out within hours of opening last Monday; the retail book runs to Wednesday, 28 October.

Will the Central Bank of Egypt (CBE) be hiking interest rates when its Monetary Policy Committee (MPC) meets on Thursday? Investment banks are firmly anchored on a hold. EFG Hermes expects the CBE to keep policy rates unchanged, Head of Macroeconomic Analysis Mohamed Abu Basha tells EnterpriseAM, noting that the fuel price freeze will keep domestic inflation contained. While the EGP’s recent weakness could add to headline price pressures, Abu Basha says it is still too early to react given ongoing market volatility and elevated geopolitical risks.

AND– An IMF mission landed in Cairo today to kick off talks on the eighth and final review of Egypt’s Extended Fund Facility (EFF) and the last review under the Resilience and Sustainability Facility (RSF), with USD 2.3 bn — USD 1.5 bn from the EFF and USD 800 mn from the RSF — on the line. Clearing the review would send us off with the Fund’s stamp of confidence, which will likely shape how investors read the years after the program.

^^ We’ll have more on these stories in tomorrow’s edition of EnterpriseAM.

☀️ TOMORROW’S WEATHER- We’re in for a clear, breezy day in the capital tomorrow, with temperatures set to peak at a sensible 28°C before making way to a cool overnight low of 20°C, according to our favorite weather app.

MAKING HEADLINES ABROAD-

More of the same headlines dominate today’s news circuit, with updates on the France protests and the situation in the occupied West Bank.

Israel continued a major military operation across the occupied West Bank, displacing hundreds of Palestinians and restricting movement ahead of Tuesday’s election. The military said it operated in more than 400 locations over the weekend and arrested 40 Palestinians it linked to Hamas or Palestinian Islamic Jihad. Palestinian workers with permits will be barred from entering Israeli settlements today and tomorrow, while crossings into Israel will remain closed until after the vote. The IDF also announced a “full siege” of Hebron, while Prime Minister Benjamin Netanyahu ordered a closure of the occupied West Bank starting Friday.

AND- Protests and violence continue to sweep the streets of major French cities. Over 400k protesters took to the streets nationwide this weekend, with almost 1k people arrested and 70k officers deployed for a second straight weekend, using tear gas and water cannons to disperse crowds.