Reasons for optimism: Stock market


The Egyptian Exchange (EGX) is one of the oldest stock markets in the Middle East, dating back to 1883. The exchange covers the main market, an overthe-counter market and the Nilex, which is a relatively new market designated for small and medium-sized enterprises. As of December 2015 there were 221 companies listed on the main market, with a total market capitalisation of LE430bn (equivalent to $22.8bn as of December 2016); and 31 listed on the Nilex, with a total market capitalisation of LE1bn ($53m).

The two most widely followed market indices are the EGX30 Index, a free-float market capitalisation-weighted index of the 30 most actively traded companies, and the EGX70 Index, a price index that tracks the performance of the next 70 most active stocks on the main market. Both indices are rebalanced in February and August of each year.

The EGX30 Index was on a down trend for most of 2015, registering a drop of around 22% for the year, primarily due to foreign currency shortages, lower oil prices, the Metrojet plane crash and perceived sovereign risk. Total market transactions stood at LE235bn ($12.5bn), implying an average daily turnover of LE481m ($25.5m). Institutional investors accounted for approximately 39% of the total turnover, while retail investors accounted for the other 61%. In another classification, foreign investors accounted for an estimated 19% of the total turnover, Arab investors for around 8% and Egyptian investors for 73%. All figures exclude deals that came in at LE82.1bn ($4.4bn). Foreign investors ended the year as net buyers at LE104m ($5.5m), while Arab investors were net sellers at LE212m ($11.2m).

Despite the weak market performance, 2015 witnessed the highest value of initial public offerings (IPOs) in 10 years as a result of four major transactions that took place that year, including Emaar at LE2.23bn ($118.2m), Edita at LE2.01bn ($12m), Orascom Construction at LE1.41bn ($74.7m), and Orascom Hotels and Development at LE510m ($27m). The main market ended the year trading at a price-to-earnings multiple of 13.6x and offering a dividend yield of 7.7%.


Despite the current economic difficulties facing Egypt, which have likely weighed down some company revenues in 2016, market performance in 2017 looks promising. Egypt has recently reached a staff-level agreement with the IMF for a three-year, $12bn loan, with board approval expected soon. The disbursement of the first tranche of the loan is expected to coincide with a planned $3bn-$5bn eurobond sale as well as the securing of some other bilateral aid. This should provide enough liquidity for the Central Bank of Egypt to start pumping foreign currency to meet demand and restore forex market functionality before the end of 2017, which bodes well for earnings visibility.

The floating of the Egyptian pound can also be seen as positive for the stock market in this context. It could attract sizeable inflows from foreign investors due to restored confidence. However, there could be risks ahead. Failure to secure enough aid to overcome foreign currency shortages is the most prominent threat, but austerity measures dictated by the government’s reform programme could also pose a risk. These will be of an inflationary nature, which – coupled with potential monetary policy tightening – might negatively impact retail investors, who remain crucial to the market.

Another source of optimism is the potential string of IPOs coming to the market. The government has an ambitious partial asset sale programme that it estimates will raise $10bn over the next three years. There are also a growing number of private sector companies that plan to list on the EGX to raise capital in 2017, not to mention regulatory efforts to encourage dual listings of some GCC companies. To this end, the EGX embarked on a four-year strategy in 2013 in order to further develop the market. The initiatives taken included launching a derivatives market, activating the bond market, introducing sukuk (Islamic bonds), upgrading the settlement systems and offering exchange-traded funds.