Identifier
Created
Classification
Origin
09CAIRO1929
2009-10-08 16:54:00
UNCLASSIFIED
Embassy Cairo
Cable title:  

EGYPT'S EQUITY MARKET: IS THERE MORE ROOM TO RUN?

Tags:  ECON EAID EFIN EINV EG 
pdf how-to read a cable
VZCZCXYZ0023
PP RUEHWEB

DE RUEHEG #1929/01 2811654
ZNR UUUUU ZZH
P 081654Z OCT 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 3804
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS CAIRO 001929 

SIPDIS

DEPT FOR NEA/ELA
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI

E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV EG
SUBJECT: EGYPT'S EQUITY MARKET: IS THERE MORE ROOM TO RUN?

REF: CAIRO 1927

UNCLAS CAIRO 001929

SIPDIS

DEPT FOR NEA/ELA
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI

E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV EG
SUBJECT: EGYPT'S EQUITY MARKET: IS THERE MORE ROOM TO RUN?

REF: CAIRO 1927


1. (U) KEY POINTS

- The Egyptian stock market has been a strong performer in

2009. The large cap index is up over 45% and the broader
index is up nearly 100%.

- Optimism about the Egyptian economy along with continued
low commodity prices have been catalysts for buyers of
Egyptian equities.

- Much of the good news and speculative foreign demand may
already be priced into the market. The remainder of the year
should see a greater level of volatility in the market.

--------------
A Good Year So Far
--------------


2. (U) The Egyptian large-cap EGX 30 (formerly the CASE 30)
index is up more than 45% since the beginning of the year and
close to 100% from its low in February 2009. This is on par
with the return of the Israeli TA-25 index and a far better
performance than any of the markets of the other regional
Arab states. The broader EGX 70 index is up almost 100%
year-to-date. Real estate and construction stocks have been
the sector leaders and have nearly doubled so far this year
because of continued demand and lower raw materials prices.
Other sectors outperforming the index include financial
services, travel and leisure, and banks. Average monthly
trading volume on the Cairo exchange in 2009 has been LE31
billion (US$5.6 billin),down about 30% from 2008.


3. (U) There are everal factors driving demand for Egyptian
equites. First is that there is increased global liquidity
and a stronger appetite for emerging market equities, some of
which is flowing into Egyptian stocks which are seen as
having a relatively favorable risk-reward ratio. Second is
that prices still appear to be cheap having fallen 56% in
2008 and ending the year 61% off its yearly high. Also
contributing to demand are lower interest rates combined with
sustained (though far lower than last year) GDP growth.
Indications of economic recovery in Egypt's European export
markets have also contributed to a level of bullishness on
Egypt's economic future.

--------------
The Future is Not So Clear
--------------


4. (SBU) Mark Rorison, Head of Research for CI-Capital
Research, told us that the performance of Egypt's stock
market this year has been driven by and has closely mimicked
the performance of the US stock market. While he is very
upbeat on the mid to long term prospects of the Egyptian
economy, he feels that short term performance of the Egyptian
equity market does not necessarily reflect fundamentals of
the Egyptian economy.


5. (U) There is no denying that some sectors, particularly
those that are driven by domestic demand and/or benefit from
lower commodity prices will continue to do well relative to
the index. Global equity trends also contribute to the mix,
and global fund managers who have had a good run so far this
year, may look to take some profits off the table. Egypt is
also a relatively small market both in terms of market
capitalization and share float. As the events of the last
few years have shown, money flows both ways. In emerging
stock markets, liquidity fears can spur panic selling and a
run for the door.

--------------
Comment
--------------


6. (U) After a disastrous year in 2008, Egyptian stocks
really had nowhere to go but up, and money has flowed into
the Egyptian market this year. As we reported (reftel),
there is much optimism about the performance of Egypt's
economy in the face of the global economic downturn. Much of
this has already been priced into Egyptian equities. In the
Egyptian case, stock market performance may not be as clear
of a leading economic indicator of corporate performance as
in other countries. There is a lot that could go right
(increased FDI, quick turnaround in the economies of key
trading partners, stimulus driven growth),but a lot could go
wrong as well (sharp increases in commodity prices, further
erosion of fiscal discipline, challenges in attracting needed
infrastructure investment). There is probably still room both
fr additional speculative investment in selected copanies
and sectors that are expected to outperfom over the next few
years, but we expect to see ncreased volatility in Egyptian
markets as both domestic and international sentiment continue
to sift rapidly through the remainder of the year.
Sobey