Foreigners Ignore Invite as Egyptian Stock Market Parties

  • Non-Arab shareholders are net sellers, bourse data shows
  • Skepticism persists about the free flow of capital in Egypt

As Egyptian stocks surged the most in six months, foreign investors headed for the exit.

Overseas shareholders, excluding Arabs, were net sellers of about 138 million Egyptian pounds ($18 million) on Wednesday, the most in more than two weeks. They unloaded another 38 million pounds today. The central bank’s decision to pay off the long line of foreign investments trapped in the country because of its dollar shortage wasn’t enough to persuade them to stay.

Egypt has paid exiting foreign investors 4 times. They’ve increased stock holdings on each occasion except this week.

The selloff reflects skepticism that Egypt will be able to allow the free flow of capital as the government continue to defend an overvalued local currency with restrictions on money transfers abroad. It’s struggling not to deplete foreign reserves to pay for imported basic commodities and the backlog of investors has been building even after the central bank announced it would repay them.

“Consistency is important,” said Akhilesh Baveja, lead manager of the Magna MENA Fund at London-based Charlemagne Capital Ltd. and who has faced difficulty repatriating funds from Egypt. “This has happened several times before but the consistency in repaying investors wasn’t there so the backlog kept building up again.”

The stock dump comes as the benchmark EGX 30 Index posted its biggest jump since May on Wednesday, before adding another 2 percent on Thursday. Speculation that the central bank’s decision would help restore investor confidence and lure inflows had boosted trading activity to the highest in five months.

GDRs Rally

The central bank’s repayment decision is the first major move by Governor Tarek Amer, who took office on Nov. 27, to ease a shortage of dollars that has curbed economic growth and repelled investors since the uprising that ousted President Hosni Mubarak in 2011. The regulator will soon sell a larger amount of dollars to banks to meet the needs of importers than the usual $40 million it deals at its regular currency sales, President Abdel-Fattah El-Sisi’s office announced Tuesday after he met with Amer.

Global depositary receipts of Egyptian companies traded in London, rallied after the decision, led by Commercial International Bank Egypt SAE, the nation’s biggest publicly traded lender. The stock climbed as much as 15 percent in the last three days, the biggest move on a closing basis over a similar stretch in more than two years.

It’s “a very healthy signal,” Radi Elhelw, the Cairo-based executive director for Arqaam Securities Brokerage SAE, said by phone Wednesday. “We absolutely think foreigners will put their money back in this market. If the foreign-exchange situation is fixed, with a devaluation or otherwise, they’re going to come back in like a herd.”

Egyptian equities have been battered by almost five years of political unrest as nationwide energy shortages and lack of hard-currency weighed on corporate profits. The country’s stocks now have the smallest weighting on MSCI Inc.’s emerging-market gauge after those of Malta.

Strong Pound

Restrictions on cash flowing abroad and the subsequent line-up of investors waiting to repatriate their money are among the main reasons the market is the world’s fifth-worst performer this year.

The pound’s official rate, which is controlled by the central bank, was unchanged at 7.8301 per dollar on Thursday, or about 9 percent more expensive than its value in the black market, according to a Bloomberg survey of dealers in Cairo and Alexandria.

The central bank has maintained the rate since a surprise appreciation three weeks ago that trimmed this year’s drop to 8.7 percent, compared with declines of 19 percent for South Africa’s rand and the Turkish lira.

"We see really good companies in Egypt, the problem is the macroeconomic situation isn’t stable," Baveja said. A devaluation of the pound "would be taken positively by the market because it would clear that hangover. Everyone can read the fact that the pound hasn’t been depreciated in line with the rest of emerging markets, which is one of the concerns that investors have."

Before it's here, it's on the Bloomberg Terminal.