During the trading period from December 15, 2011 to January 15, 2012 the EGX 30 index recorded a net decline of 2% mainly on the back of clashes between protesters and security forces in mid-December and the holiday season. The index dropped to 3,587 points on December 28 from a high of 3,918 points. By the beginning of the year the stocks started to regain some value, pushing the EGX 30 to 3,840 points on January 15 as investor appetite improved due to the relative stability in Tahrir Square coupled with the government’s initiatives to resolve ongoing legal disputes.

Index heavyweight, Commercial International Bank, dropped 6% to close the period at LE 20.37, trading 17 million shares and recording a trading value of LE 342 million. Orascom Construction Industries closed up 2.8% at LE 216.8, recording a total value of LE 284.5 million on a robust trading volume of 1.4 million shares.

Egypt’s largest mobile operator, Mobinil, recorded a significant decline of 16.3% to close the period at LE 78.2. Total trading on the stock came to LE 147 million and 1.9 million shares. The incumbent fixed-line operator, Telecom Egypt dropped 0.14% closing at LE 13.98 with total turnover of 5.9 million shares worth LE 79.4 million.

Similarly, Ezz Group, Egypt’s largest steel manufacturer, dipped to LE 4.36 during the month after booking total trading volume of 34 million shares worth LE 136 million. However, the stock started to show consecutive gains in the last two sessions especially after an agreement between the government and steel producers was reached concerning the withdrawn steel licenses.

Among the top gainers this month was Egyptian Company for International Touristic Projects, which outperformed the market, closing the period up 127% after announcing an increase in the company’s paid-in capital from LE 120 million to LE 180 million at a par value of LE 5 per share. The stock ended the month at LE 20.98 after securing total value and volume of LE 33,000 and 2,000 shares respectively.

Beltone Financial Holding surged 20% on a robust trading value of LE 3.6 million to settle at LE 14 while total shares traded reached 241,700. This significant increase is mainly backed by the ongoing negotiations with local investor, Mohamed Metwalli, CEO and chairman of AIC to buy Beltone Chairman Alaa El Saba’s stake in the company.

Surprisingly, Rowad Tourism sustained its upward movement without any specific reason; hovering at LE 9.14, closing the period up 19.5%. Additionally, Modern Company for Water Proofing (Bitumode) was up 13% at LE 2.6 while capturing total value of LE 25 million and trading volume of 10.5 million shares.

Furthermore, Asec Mining displayed positive performance throughout the month recording a 6.7% increase to close the period at LE 8.18 with a total trading value of LE 3.4 million.

Among the top losers this month was Abu Kir Fertilizers whose stock lost 47% of its value due to the distribution of free shares at a ratio of 2:3 shares. Egyptian Chemical Industries – KIMA edged down by 19.3% to LE 8.9 on a trading value of LE 45 million, however, the company announced that it is about to undergo restructuring which could trigger a positive sentiment on the stock.

Also, Ismailia Poultry slumped by 18% reaching LE 4.7 even after the recent announcement that the company will add new production units. Furthermore, Delta Sugar dwindled 16.5% to close at LE 17 securing total value of LE 5.3 million on trading volume of 277,400 shares on the back of the distribution of free shares at a ratio of 15:100 shares.

Within the housing sector, Amer Group was among the most actively traded stocks with 97 million shares trading hands for a total trading value of LE 56 million while ending 10.8% lower at LE 0.58. The market’s biggest company in terms of market capitalization, Talaat Mostafa Holding plummeted 6.6% to LE 3.24 while securing the second largest trading volume of 83 million shares with huge trading value of LE 253 million. Palm Hills Developments, the second-largest real estate developer by market capitalization declined 3.2% ending at LE 1.20 with huge trading volume of 40 million shares.

It’s worth mentioning that Arab Real Estate Investments (ALECO) secured a huge trading volume of 35 million shares worth LE 18 million, ending at LE 0.54 which showed a decline of 3.6%. Six of October for Investment and Development which witnessed a significant decline of 16% to conclude the month at LE 8.5 with total worth of LE 49 million and six million shares traded.

Accordingly, the most active companies were Arabiyya Lel Istithmaraat as the stock retreated slightly by 1.8% ending at LE 0.54 on a trading volume of 52.1 million shares at a value of LE 27.6 million. Moreover, Pioneers Holding witnessed a moderate decline of 1.2% reaching LE 2.58 at a total value of LE 87 million and a robust volume of 38 million shares. Consequently, Citadel Capital plunged 7% to LE 2.63. On the contrary and within the same sector, EFG Hermes ended the period up 3.8% closing at LE 10.5 while securing a trading value of LE 72 million on a relatively strong trading volume of 7.2 million shares.

Economy roundup
Political instability in Egypt has hit the economy hard by slashing investment levels. In 2011, investments shrank by 4.4%, recording a 7.1% increase during the first half but showed decline of 16% year-on-year (YoY) during the last six months. The drop in investments is caused by inconsistent economic policy, high frequency of changing government heads, social discontent and uncertainty over the economy. Hence, investment levels are expected to remain at their 2H2011 levels throughout 2012.

Foreign direct investments (FDI) dropped to $2.2 billion (LE 13.29 billion) in 2011 from $6.8 billion (LE 41.07 billion) in 2010. Throughout 2012, net FDI inflows are expected to reach $1.8 billion (LE 10.87 billion) and will mainly be concentrated in the oil and gas sector, with hardly any expansion efforts. Domestic investment, on the other hand, recorded LE 216 billion in 2011 from LE 191 billion in 2012, hence, recording 2% growth in real terms. It is worth noting that investments in oil, gas and extractions were hardest hit during 2011, declining by 62%, 18% and 84%, respectively with expectations of stagnation in 2012.

Unemployment increased significantly to record 12% in 2011 from 9% in 2010. Shrinking investment manifested itself in muted GDP growth of 1.8% during 2011, where output showed 5.5% growth in 1H 2011 but declined by 1.8% in the latter half.

In addition to low investment levels, low tourism levels also affected GDP growth, negatively. In 2H2011, tourism registered a 20% decline, resulting in an end-of-year decline of 6%. GDP momentum was maintained by government spending and household consumption recording 3.8% and 4.5% growth. A swelling budget deficit as well as high unemployment levels will reduce disposable income and slow down spending.

Also, tourism revenues are expected to drop in 2012 from $10.6 billion (LE 64.02 billion) recorded in 2011 to $8 billion (LE 48.32 billion). This being said, the GDP is expected to grow 1.5% throughout the year.

The current account deficit narrowed to $2.8 billion (LE 16.91 billion) in 2011 from a deficit of $4.3 billion (LE 25.97 billion) in 2010. The improvement mainly came due to low growth of imports in 2011, combined with string growth in remittances. Lower tourism revenue, however, resulted in declining services balance of $7.9 billion (LE 47.72 billion) from $10.3 billion (LE 62.21 billion) in 2010.

The capital and financial accounts deteriorated significantly due to lower FDI in addition to net portfolio investment outflows of $2.6 billion (LE 15.7 billion) compared to net inflows of $7.9 billion (LE 47.72 billion) recorded in 2010. The net result is a balance of payment deficit of $9.8 billion (LE 59.19 billion) compared to a surplus of $3.4 billion (LE 20.54 billion). Going forward, the balance of payments is expected to register a deficit of $7.5 billion (LE 45.3 billion) due to a slowdown in exports, especially as Jordan has moved to source its natural gas supplies from Qatar rather than Egypt.

Tourism receipts are also expected to decline 25% leading to a further deterioration in the services account. Transfers are expected to maintain the uptrend, while FDI on the other hand is expected to stabilize at $1.8 billion (LE 10.87 billion), while portfolio investments are expected to experience outflows of $1.5 billion (LE 9.06 billion).

The budget deficit has swollen by 40% in 2011 to LE 137 billion — 10% of GDP. Government revenues witnessed a mild decline in 2011 due to receding investment income. Government expenses on the other hand, continued to grow due to demands for higher minimum wages, a burgeoning subsidy bill necessary to maintain social stability, in addition to interest expenses to serve a surging debt burden.
Over 2012, government revenues are expected to decline 2% due to lower tax revenue reflecting irregular economic activity and high unemployment. Also, government expenses will continue to increase mainly in the three bulk areas: public sector salaries, subsidies and interest. The result would be a cash deficit of LE 171 billion, amounting to 11% of GDP. Domestic and external government debt amounted to LE 1.3 trillion or 91% of GDP and the expanding budget deficit is expected to result in debt culminating to 93% of GDP by June 2012.

Expanding government debt, together with political instability and tight liquidity at the Egyptian banking sector (for example, 50% of deposits are devoted to loans and over 40% go to government treasuries) resulted in a high interest rate environment. Interest rates have been hiked to 15.5% on one-year treasury bills (T-bills) in January 2012, from 11.7% in January 2011. Also, interest on 5-year bonds increased to 16.4% in January 2012, up from 12.4% in October 2010. It is worth noting that the high cost of borrowing resulted in cancellation of several T-bill auctions, as well as the concentration of government debt in short-term maturities and low amounts.

Similarly, overnight lending and deposit rates were increased to 10.25% and 9.25%, from 9.75% and 8.25%. Further increases in policy rates are expected to take place raising deposit rates by 1–1.5% and lending rates by 0.5–1%. This is due to a need to attract funds to the Egyptian banking sector in order to finance expanding government deficit as well as supporting the Egyptian pound.

The exchange rate witnessed a mild 4.3% depreciation from LE 5.8 to the dollar in January 2011 to LE 6.05 in January 2012. There has been a rapid depletion of foreign reserves to $18.1 billion (LE 109.32 billion) in December 2011 from $36 billion (LE 217.44 billion) in December 2010. Foreign reserves are expected to settle from $6 billion to $9 billion (LE 36.24 billion to LE 54.36 billion) by June 2012 due to a high reliance on imports, deteriorating tourism income, minimal FDI inflows and portfolio investment outflows. Accordingly, the pound is expected to depreciate to LE 7.

Inflation averaged at 10.5% during 2011 from an average 11.3% during 2010. The decelerating inflation is attributed to fading demand for all goods and services, except food and other basic necessities following the revolution. However, inflation continues to be a dormant threat due to the large population base, low production, high dependence on imports — the scarcity factor, combined with depreciation of Egyptian pound. Hence, inflation is expected to accelerate throughout 2012 to 13%. This rate takes into consideration recessionary demand factors. bt