Interview: Mohammed Omran
What was the impact of the unrest at the end of 2011 on the stock market?
MOHAMMED OMRAN: If you look to the performance of the stock market following the January 25th revolution, it was more or less in line with expectations in any country after a revolution when you have a radical change in the market. Recently the market has been more sensitive to the political movement on the ground more than the economic situation. The listed companies on the stock market have been affected, but not as badly as prices would indicate. The negative impact on listed companies was not as severe as stock prices themselves.
Given the complications of political risk, what sort of challenges have investors faced in accurately gauging valuations?
OMRAN: As chairman of the EGX I cannot say if stocks are undervalued or not. I can, however, speak about the facts. I would point out that the price earnings ratio multiplied is about 9-10 times, which is cheaper compared to other emerging markets. The dividends yields are 6-7% – higher than the average emerging markets. Stock prices compared to 2011 and 2010 lost around 50%. The profitability of listed companies was not affected as badly as their stock prices. All these issues make you think there will be some opportunities to invest in the stock market when there is a clear vision for the political future. Then the performance of listed companies on the economic side will be much better. This will have an impact on their prices.
What new financial instruments or indices could help to entice new investors?
OMRAN: We expect when the market starts to pick up again there will be many companies wanting to have capital increases because they may choose to expand their investment. The Egyptian Financial Supervisory Authority is also working on getting sukuk(sharia-compliant bond) legalisation completed. That could be an instrument needed in the market now that we are working under a new political landscape. The sukuk has proven to work well in Bahrain and Malaysia. Exchange-traded funds have been a while in the making, but the financial crisis in 2008 and the revolution delayed our plans. When markets start to rebound this will be one of the issues needed to commit more liquidity and attract more investors.
What can be done to support small and medium-sized enterprises (SMEs) and individual investors?
OMRAN: The trading mechanism for the Nile Stock Exchange (NILEX) was previously based on an auction system. Many investors complained about the mechanism and wanted a market-driven order like on the EGX. In November 2011 we changed the trading mechanism to have a new market-driven system, and this has helped increase the average value traded by 3-4 times compared to the other system. We are now trying to increase the number of listed companies on NILEX. Political issues have upset our efforts, but I think things will settle down and 2012 could turn out to be a very good year when it comes to SMEs.
How can new initial public offerings be promoted?
OMRAN: Nothing will happen unless a clear vision is apparent. Having access to finance is not needed unless there is a vision to grow. If people are expecting that things will calm down in six months or a year they will start to prepare themselves to be listed and be ready for the new wave of growth. As there is a mandate in the stock market that – after three months of listing – a company must float at least 10%, some people feel the market is not ready. Many would prefer more positive signs that the economy is on the right track. People must remember that Egypt grew by 7% a year for three years before the financial crisis and it is not hard to return to that level of growth. This will be determined by how quickly the factors of security, political vision and putting the right economic policies are put in place, but Egypt has all the fundamentals needed to grow.
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