The EGX30 added 1.73% in May, but the rally has rotated down-market

The EGX30 added 1.73% in May to close the month at roughly 52.7k points, according to the bourse’s latest monthly report (pdf) — a far cry from April’s 14.2% surge but still a solid showing since the month was shortened by four trading sessions for Eid El Adha. Total market cap climbed 2.48% to EGP 3.76 tn. Broader indices outperformed the blue-chip benchmark by a wide margin, with the EGX70 gaining 4.44% and the EGX100 rising 4.52%, suggesting the rally that started in large caps in April is working its way down the market.

ZOOMING OUT- The mild pickup is a relative outperformance. Regional markets finished May ankle-deep in the red, with TASI dipping roughly 1%, the ADX sliding 0.8%, and the DFM shedding roughly 0.1% of its value during the month, due to renewed geopolitical tensions, according to a report (pdf) by Kamco Invest.

Stocks accounted for 11% of main market turnover, slightly higher than April’s 8.4% equity share but not unusual, and the remaining 89% dominated by bonds and T-bills.

Why the cool-off

April’s outsized gain was always going to be a tough act to follow, especially because its two main engines weren’t available for a repeat. “We didn’t see a continuation of the EGP depreciation; it was sort of range-bound, going up a little and down a little,” CI Capital managing director and head of research Monsef Morsy tells EnterpriseAM. The FX repricing dynamic that lifted stocks broadly in April (a pattern Morsy says played out consistently across multiple cycles over the past five to seven years) simply wasn’t in play last month.

The liquidity picture also shifted. A significant chunk of the one-year CDs that matured through February, March, and April found its way into equities during April’s rally. “A big part of that liquidity already got deployed into the stock market during April,” Morsy says. “This is the main reason for not seeing the same strong performance in May,” he adds, noting that “we didn't see much happening on these specific points.”

Playing catch-up

The EGX70 and EGX100 beating the EGX30 by more than 250 basis points is pure market mechanics. “Because we initially saw strong performance from the larger caps in April, a rotation into the smaller names naturally followed,” Morsy tells us. “Whatever stocks caught up in May from the smaller caps were just catching up with what happened with the larger caps,” he says. “I wouldn’t say this is driven by fundamentals whatsoever,” he adds.

What moved the needle?

Investors piled into travel, trade, and real estate stocks. Travel and leisure led gains (+20.6%), followed by trade and distributors (+9.3%), and real estate (+9.1%), marking the second straight month that travel and real estate rank among the EGX’s top three performers. At the other end, basic resources fell 5%, food and beverages slid 1.9%, and industrial goods edged down 0.1%. Banks, which Morsy flagged in April as the re-rating trade to watch, etched out a 0.6% gain.

The travel and leisure sector benefits structurally from FX exposure — all these companies are positively correlated to CY moves, Morsy notes, which still matters in an environment where some investors are pricing in the possibility of further depreciation at some point. The numbers back up what industry executives told us in March: Egypt's travel and tourism sectors have largely avoided the fallout from the Iran war, with disruption mostly limited to GCC travelers facing flight cancellations.

A one-off gain may also be behind the move. Egyptian For Tourism Resorts (ERC) closed the period up 50%, making it one of the sharpest single-stock moves on the main market in May. This coincided with a court ruling that blocked an attempt to unseat the company’s board and a separate international arbitration award ordering the return of Sahl Hasheesh land plots to ERC’s inventory, which tightened the company’s grip on one of Egypt’s largest coastal tourism land banks.

Real estate’s 9.1% advance wasn’t a sector-wide deployment either. “A couple of developments are happening for the leading companies on the stock market, like TMG and Palm Hills,” Morsy says. TMG closed up 2% at EGP 96, while Palm Hills surged 33.5% to EGP 15.17 — the latter’s Ras El Hekma project developments are among the proximate catalysts Morsy cites. Both stocks ranked among the top three by value traded on the main market for the month.

The thesis on banks’ re-rating remains intact but untriggered. “Sometimes the re-rating takes time because there is no immediate, imminent catalyst for the stocks or the sector,” Morsy says. The fundamental case is as strong as it’s been (earnings visibility, margin resilience, strong 1Q results) but short-term triggers are absent. The clearest one Morsy can point to: any positive surprise on the regional front that sees the market begin to price in interest rate cuts — “that will serve as a strong catalyst for the re-rating of banking stocks,” he says.

The foreign selling

Local institutions led the rally with purchases of EGP 2.8 bn (excluding block trades), while regional institutions dumped shares worth EGP 2.4 bn, and foreign institutions sold EGP 2.8 bn in EGX-listed stocks. Local (EGP 2.5 bn) and foreign (EGP 25 mn) retail investors recorded net purchases. Regional individual investors were net sellers to the tune of EGP 147 mn.

On profittaking + a live test of Egypt’s repatriation mechanics: Two things are happening at the same time here, Morsy says. First, non-Egyptian investors who are sitting on gains from April and early May are taking gains while they can. Second, and more telling: “Usually, non-Egyptian investors, especially in periods where there are concerns or question marks on the overall FX market, tend to test the market. They want to see if they want to sell, does the repatriation of funds happen easily? Do they get their money right away from banks?”

Rest assured. The domestic picture, in Morsy’s read, is materially better than the foreign selling implies. Inflation dynamics are contained, the energy sector is stable with no talk of shortages, and FX is holding. “All of this gives a positive sentiment and message on the domestic front,” he says. “Eventually, this will reflect on foreign and Arab investor appetite going forward, as long as there is no further escalation on the regional front.”

The new player on the board

Korra Energi was the only company to IPO in May, the second one this year following Gourmet’s blockbuster debut. The energy solutions firm’s retail subscription closed 31.35x oversubscribed before the Eid El Adha break, after its institutional offering was 5.7x covered. Korra, which is floating an 11% stake, is expected to hit the EGX trading floor in the coming weeks.

May also brought six new listings. Egypt Education Platform listed on 6 May with 199.4 mn shares at a par value of EGP 10. Chemical Industries Development, El Nasr Co. for Fertilizers and Chemical Industries, the Egyptian General Company for Tourism and Hotels, and Misr Travel all listed on 14 May. OG Capital for Investments listed on 19 May as a special purpose acquisition company — a relatively rare structure on the EGX.

The brokerage league table

In May, Thndr topped the monthly table (pdf) with a 15.4% market share, beating EFG Hermes’s two brokerage arms (a combined 14.3%) and Mubasher (6.6%).

Meanwhile, EFG’s two brokerage arms dominated the YTD picture with a combined market share of 15.7%, ahead of Thndr (13.5%) and Mubasher (6.6%), according to the YTD ranking (pdf).