Amid health rumours that plunged Egypt’s stock market, Mubarak’s televised appearance from a German hospital reassured investors and averted a deeper financial crisis.

The Egyptian Exchange (EGX) seems perpetually eager for a reason to drop. If it wasn’t the Dubai crisis a couple of months ago, then it was the Pioneers stock manipulation scandal. Investors during this period worked tirelessly to find another reason to panic—this time, it was concerns over President Mubarak’s health.

In the last week of this reporting period, the leading stock index, EGX30, managed to drop by 6.14 points due to rumours surrounding the president’s health. Mubarak, now 81, had undergone gallbladder removal surgery in Germany on 6 March. Official reports from both the hospital and the government stated that he was in good health and recovering well, but this reassurance fell short for EGX investors, who demanded video proof.

As is often the case, the market’s reaction to these rumours triggered significant panic, which could have been devastating. What ultimately saved the market from another financial meltdown was Mubarak’s timely appearance on Nile News, a state-owned channel. The president was shown reading recent newspapers, chatting with his doctors, and making phone calls—a wise move that helped the market recover by the end of the week, regaining at least half of what had been lost in just two days.

Indices

The EGX30 retreated by 3.64% during the reported period, driven by uncertainty surrounding rumours about Mubarak’s health. This followed a recovery from the 6.14% drop on 14 and 15 March, after reassuring news about the president emerged.

Telecom Egypt (TE) contributed to the market’s retreat with unexpected financial results that fell below the expectations of investment banks and financial analysts. The company’s revenues declined by 1.5%, largely due to strong competition from mobile operators.

The leading market index, EGX30, showed mixed performance during the period. The Commercial International Bank (CIB) stock achieved a 2.15% growth, while Orascom Construction and Industries (OCI) regained momentum after weeks of losses, recording a 2.62% increase by the end of the reporting period. This came despite the company’s 2009 performance release, which reported a 39.7% decline in net profits. However, the management’s decision to distribute a one-dollar coupon per stock helped revive investor confidence.

In contrast, the small and medium stocks represented in the EGX70 index suffered a significant drop of 13.02%. This was largely attributed to panic among individual investors, who tend to be more influenced by news and rumours and exhibit more emotional trading behaviours than institutional investors. Unlike the EGX30, the EGX70 failed to recover from the earlier downturn caused by negative news, though it regained some ground following positive updates about Mubarak’s health.

The index also faced liquidity challenges due to several initial public offerings (IPOs). Further compounding its troubles were fines on manipulated stocks, such as Lift Slab’s. This created fears among investors of similar issues arising with other stocks, prompting heavy sell-offs of any shares perceived to be at risk of the same fate.

Banking and Financial Services

Most market sectors experienced declines in their indices during the reporting period. However, the banking sector defied these trends, recording a 2.84% rise. In contrast, its counterpart, the financial services sector, met expectations of pessimists, retreating by 3.89%.

The performance releases of banks helped prevent a sharper market decline, with CIB leading the sector’s rise with its 2.15% increase as one of the EGX’s most resilient stocks. HSBC had previously predicted that the banking sector would drive market recovery. While this didn’t fully materialise, the sector at least avoided a downturn.

A lack of news or recent developments in the financial services sector left investors hesitant to trade its stocks. The lingering effects of the Dubai crisis continued to exert a slight negative impact on this sector, which remains highly sensitive to adverse events that prolong uncertainty.

The Housing and Development Bank (HDB) announced plans to increase its capital from LE670 million to LE1.15 billion as part of a new strategy to penetrate the joint credit market. This credit offering is intended to target companies and government authorities.

The Egyptian Financial Supervisory Authority (EFSA) approved the Egyptian Gulf Bank’s (EGB) proposal to establish its new project, Tharaa Fund. With an initial capital of LE200 million, the fund aims to invest in opportunities generating daily financial returns.

Meanwhile, the Arab Investment Bank (AIB) introduced a new saving certificate with an accumulating return. The certificate has a term of seven years and seven months and is designed to ensure diverse liquidity sources over extended periods. Certificates are priced from LE1,000 with no maximum limit, offering a 100% profit by the end of the term. Additionally, holders can obtain credit up to 90% of the certificate’s value.

Telecoms

The telecoms index dropped by 7.09%, driven by disappointing news of Telecom Egypt’s (TE) 1.5% revenue decline, which stemmed from intense competition with mobile operators, as previously mentioned. The sector had been on an upward trend in preceding weeks, typically followed by a period of profit-taking, which materialised during this reporting period.

In response, TE is exploring ways to capitalise on its extensive real estate assets, valued at over LE10 billion. The company has completed a classification process for these assets based on their value across all governorates. TE plans to utilise its buildings for marketing and promotional activities, especially in light of declining returns from landline services. The company is also strategising to transform into a comprehensive communication group.

Meanwhile, the Central Bank of Egypt (CBE) has stated that the launch of mobile banking services depends on the completion of system upgrades within banks to support the new service. The CBE anticipates that the service will begin in the second half of the year, though it is up to banks to initiate contracts with mobile operators.

In 2009, Vodafone Egypt surpassed Mobinil’s profits by LE1.2 billion, achieving LE3.215 billion in profits and approximately LE12 billion in revenues, compared to LE11.5 billion in 2008—a growth rate of 3.5%.

Construction and Real Estate

The construction index declined by 2.34%, while the real estate index recorded a more significant retreat of 7.18%.

The earlier rise in the construction sector led to a profit-taking phase, resulting in the observed decline. Optimism from Deutsche Bank regarding Orascom Construction Industries (OCI) helped mitigate a sharper drop in the sector. Deutsche Bank raised OCI’s stock fair value from LE230 to LE282, prompting a 2.62% increase in its stock, which supported the sector’s overall performance.

In the real estate sector, apart from Six of October Development and Investment (SODIC), which increased its stock capital, most companies lacked significant news, leading to uncertainty among investors. Following a period of growth, the sector also underwent a profit-taking phase, leaving investors without a clear sense of its future direction.

Al Shams for Housing and Development reported net profits of LE10.625 million in 2009, up from LE10.036 million in 2008, representing a growth of 5.8%. This increase was attributed to a rise in the company’s investment portfolio, particularly its holdings in Tourism Development Co stocks, which grew to LE4.284 million, giving Al Shams a 10% stake in these stocks.

Meanwhile, the Egyptian Company for Engineering and Trade signed an agreement to construct 320 villas and 88 buildings as part of the New Cairo compound Hyde Park, owned by DAMAC Properties.

A Macro View

A report by the Ministry of Finance, published via the state-owned Middle East News Agency, revealed that the public budget deficit had surged to LE65 billion in the first seven months of the 2009/2010 fiscal year, compared to LE39 billion for the same period the previous year. The deficit accounted for 5.5% of the country’s GDP. The report attributed this increase to a slowdown in the domestic economy and the lingering effects of the global financial crisis on public finances.

According to the report, public spending decreased by 6.2% during the period from July to January, falling to LE173.8 billion from LE185.3 billion in the same period the previous year. Meanwhile, public revenues declined by 26.2%, dropping to LE108.6 billion from LE147.1 billion.

Another version of this article is published by Business Today magazine.