The Egyptian Exchange sustained losses again throughout last month, reflecting political uncertainty as a predominant concern for the EGX traders for the third month in a row.

The market’s main index dropped to 3,688 points on November 22, its lowest level since January 2009.

The fragile political situation and November 28 elections are fueling investor anxiety. Although Eid Al-Adha passed by peacefully, the protests in Damietta and the Agrium-MOPCO factory as well as the shift in Italy’s government along with the Greek premier resignation added to the overall instability of global markets.

The EGX 20 capped and the EGX 30 companies, which are dependent on large-cap and blue-chip companies, sustained the least amount of losses. The EGX 20 closed 1.3% lower at 4,425.55 while the EGX 30 was 0.9% lower at 4,177.01 points.

The EGX 70 and EGX 100, which are more dependent on smaller-cap stocks, recorded more losses — 5.3% and 3.2% — to close at 457.79 and 718.88 points, respectively.

Although trading volumes were nearly the same, the EGX still recorded lower volumes throughout the period, registering a figure of LE 4.85 billion, down 6% compared to the period from September 18 to October 13.
 

Currency and inflation
Although political turmoil and tensions were very high throughout the reporting period, the Egyptian pound was rather stable in the foreign exchange market as a result of two factors. First was the trouble with the US dollar and its exaggerated national deficit that surpassed $14 billion (LE 84 billion). This created upward pressure on the US dollar against other currencies. Second was the performance of many economic indicators such as inflation, interest rates and foreign reserves. The exchange rate reached LE 6.01 per US dollar at press time compared to LE 5.97 per US dollar in the preceding reporting period.

In its October 13 meeting, the Monetary Policy Committee stated that the headline consumer price index increase of 1.43% month-on-month (MoM) in September, following the 1.1% increase in August coupled with the current economic slowdown, limited the upside risk to the outlook on inflation. Accordingly, the MPC held overnight deposit and lending rates at 8.25% and 9.75%.

Inflation recorded a MoM increase of 0.33% during October with annual inflation rates down 7.1% compared to 8.2% in September.

The drop in inflation came at a cost: the government of Egypt became an unwelcome borrower in the international debt market due to the internal political turmoil. So it started borrowing internally, pushing the interest rates in the banking sector higher as banks competed to acquire liquidity. Interest rates on five-year treasury bills reached 14.25%, an increase from 9.75% last January.

Meanwhile, international foreign reserves continued to decline to $22.1 billion (LE 132.82 billion) at the end of October compared to $24 billion (LE 144.24 billion) at the end of September as reported by the CBE.