The EGX30 surged 3.9% this week to close at a new 12 month high, buoyed by retail investors moving into the market, optimistic that government efforts to bolster an ailing economy are bearing fruit. Qatar stated it would invest USD 18bn in tourism and industry projects along Egypt’s Mediterranean coast over the next five years, the latest pledge of support to an economy hammered by a year and a half of political turmoil. The projects include USD 8bn for gas, power and iron and steel plants at the northern entrance to the Suez Canal and USD 10bn for a giant tourist resort on the Mediterranean coast.
In the last few months, Egypt has received more than USD 5bn in loans and pledges, including USD 2bn in direct budget support from Qatar and loans from Saudi Arabia and the Islamic Development Bank. Egypt last month also formally asked the International Monetary Fund (IMF) for USD 4.8bn in emergency funding. This week, the Obama administration is reportedly close to a deal with Egypt’s new government for USD 1bn in debt relief, a senior U.S. official stated, as Washington seeks to help Cairo shore up its ailing economy in the aftermath of its pro-democracy uprising. U.S. diplomats and negotiators for Egypt’s new Islamist president Mohamed Mursi are working to finalize an agreement but the deal is not yet done.
As a result, Egypt’s foreign reserves increased by USD 705m in August, resuming their rise after having fallen the month before, the central bank stated. Net international reserves rose to USD 15.1bn at the end of August from USD 14.4bn at the end of July. The Egyptian pound however dipped to its weakest in more than seven and a half years after the central bank released the data. In addition, the central bank kept its benchmark overnight deposit and lending rates unchanged, noting there was still concern that inflation might speed up and economic growth would slow down. The bank’s MPC left its key lending rate at 10.25% and the deposit rate at 9.25% after its regular meeting.
Stocks rallied across most sectors, with building (+3.7%), banking (+5.0%), and property sectors (+4.5%) being the strongest. Amongst the top 100 stocks, gainers outnumbered decliners 81 to 14, while trading activity was heavy – USD 480m was traded, almost double the average seen in the past 6 months. Some of the notable gainers included Orascom Construction (+3.8%), which reported a 28% drop in net income for 2Q12 (USD 119.4m from USD 165.2m in 1Q11), pulled lower by start-up costs at new fertiliser factories, as it prepares to split the two businesses. OCI expects to split its construction and fertilizer businesses into separate companies next month to make them more competitive, widen their investor base and improve their credit profiles. Other gainers were CIB Egypt (+4.3%), South Valley Cement (+16.8%), Palm Hills Development (+14.6%), EFG Hermes (+4.7%), and Elswedy Cables (+4.9%). El Sewedy Electric gained despite reporting an 82% drop in 2Q12 profits (EGP 30.6m vs. EGP 169.5m in 2Q11).
Source: African Alliance