Interview: Hussein Choucri
How do you expect markets to react in the medium term to the Covid-19 pandemic, particularly given its supply-side impact seen in early 2020?
HUSSEIN CHOUCRI: The initial challenge for capital markets brought on by the pandemic was uncertainty regarding not only to how the situation would evolve, but also how investors would react. However, in the longer term the picture is clearer and more positive, particularly in Egypt. The initial slowdown in global demand due to the stay-at-home orders in countries around the world has resulted in businesses and consumers adapting to working and living in these new circumstances. The underlying fundamentals of Egypt’s economy continue to indicate positive growth, and the broader economic reforms that have been undertaken in recent years will provide an additional cushion to the recovery. Businesses will have to adapt, but Egypt has a diversified market. As such, despite the unusual situation brought on by the Covid-19 pandemic, it seems that markets will be relatively stable over the medium to long term. While the country could benefit from greater depth, it is likely to perform better than comparable markets in the region, as it has done in the past during periods of volatility.
In what ways can market participation be made more attractive to both companies seeking to raise capital and investors?
CHOUCRI: Companies in Egypt that want to obtain financing do not struggle to find options, so this has not been a key driver for a public listing. Funding is largely available either through loans or private equity, particularly if companies are looking to fund growth. Private equity institutions in the region have become increasingly active in Egypt, bringing liquidity to the market. The public market, however, has not attracted investment to its full potential, and the volume of trading on the Egyptian Exchange (EGX) has been lower than would be expected for a market of Egypt’s size.
It is often said that capital markets are a reflection of the economy. In looking to resolve challenges such as low trading volumes, the first place to look to is economic policy – although there are a number of much broader factors as well. While increased market liquidity and additional listings would help to attract investors, boost trading volume and diversify the market, continuing overall economic reforms will contribute to a better business environment. The implementation of institutional reforms beyond monetary reforms and policy will support foreign direct investment and the capital markets as well.
To what extent do you see the adoption of algorithmic or otherwise automated trading as reducing the market’s ability to resist shocks?
CHOUCRI: Algorithmic and automated trading is beginning to affect markets around the world, although it is perhaps too soon to say to what extent these tools will affect volatility. The real impact of technology is apparent in companies’ business models and in the way that clients interact with businesses. This is equally true in the capital markets, where in place of the client-broker relationship a significant amount of trading is done online. This has been enabled by rising levels of internet penetration and the availability of investment tools online.
In Egypt online offerings and client numbers are growing but remain relatively limited. As such, we have seen that technology is not the simple solution for increasing market participation, which has been relatively stable since 2000. Instead there needs to be progress in boosting financial inclusion and banking penetration, both of which are natural precursors to investing on the EGX. As the population begins to feel the benefits of economic reform, the potential for higher levels of market participation would be strengthened by an effort to educate and raise awareness about the importance of savings and investing.
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