Egyptian shares are expected to resume their rally in the few coming weeks, after the Central Bank of Egypt (CBE) cut interest rates last week, a step seen by analysts to serve as the main boost to the market, with investors also likely to start building new positions in large caps ahead of the earnings season.
The main indices are likely to resume their rally with a new collective purchasing power pushing stocks higher to test near resistance levels, head of the capital market committee at the African Economic Council, Ayman Fouda, said.
“Cutting interest rates will lure more investors to pump cash in the stock market and abandon banking assets seeking more profitability,” he highlighted.
The CBE’s Monetary Policy Committee (MPC) met on Thursday and decided to cut interest rates by 1%.
The overnight deposit and lending rates now stand at 17.75% and 18.75% respectively, while the main open market rate will be at 18.25%.
The benchmark EGX30 index has resistance at 14,930 and 15,076 points, while it has support at 14,650 and 14,468 points, Fouda highlighted.
The small- and medium-cap EGX70 index has a short-term resistance at 855 and 872 points, and has support at 836 and 820 points, he added.
He recommended investors to monitor stocks and perform quick trades to benefit from stocks’ volatile trend, in line with holding a sufficient liquidity in investment portfolios to recreate purchasing positions on stocks witnessing strong collective buying power.
“The current easing cycle suggests that interest rates will extend their downward trajectory in the few coming months. This is good news for stock market,” said Saeed El-Feky, branch manager at Osool Securities.
“The CBE’s easing cycle, which started last week, is likely to result in larger interest rate cuts than most anticipate. We expect an additional 650 basis points of rate cuts by the end of 2019,” Capital Economics said in a recent research note.
In the accompanying statement, the MPC pinned its decision on the recent sharp drop in inflation.
EGX30 levels up 0.3% in a week
EGX30, the benchmark index, levelled up 0.3% as it ended the week at 14,965.93 points.
The small- and medium-sized enterprises index EGX70 added 0.44% and closed the week at 852.2 points, while EGX100 gained 0.33% to reach 2,032 points.
Meanwhile, the equal-weighted index EGX50 lost 0.74%, and closed at 2,628 points.
Market capital rose by EGP 11.2bn this week, reaching a total of EGP 863.7bn.
Analyst Saeed El-Feky said that the gains of the main index were on the back of blue-chip stocks, as it continues to move horizontally between 14,700 and 15,100 points, as he believes the index will peak if the central bank decreased interest rates.
As for EGX70, the index has successfully penetrated the 850-point level, and is now targeting 865, he added.
Meanwhile, the Egyptian Exchange (EGX) saw a mostly positive performance during January, as the market indices were supported by foreign and Arab investors’ buying.
The benchmark index EGX30 extended a rally for the fifth month in a row, levelling up 0.15% in January, and reaching the level of 15,042.37.
Traded values on the main index’s stocks totalled EGP 15.18bn, with volumes of 4.14bn shares.
Market capital rose by 4% or EGP 33.5bn, as it ended the first month of 2018 at EGP 858.5bn.
Meanwhile, the small- and medium-sized enterprises index EGX70 surged 4.26% in January, making its highest monthly gains since last September, as it closed at 862.94 points, while the broader index EGX100 increased by 3.56% to 2,041 points.
The equal-weighted index EGX50 was up 4.72% to the level of 2,690 points.
Meanwhile, MubasherTrade Research has initiated coverage on the stock of El-Shams Housing and Urbanisation with a buy/moderate risk rating.
The research firm also set the stock’s price target (PT) at EGP 12.08 per share.
The company has served the lower middle-income youth segment with affordable prices and reasonable payment terms since 1946, as it has developed a total of seven projects in Nasr City, Heliopolis, Maadi, and Sixth of October City.
Its current project Gardenia, located in Sixth of October City, falls in the same category and is expected to be completed in 2022.
The report also noted that an expansion of land bank is being carried out, with a transformation into an off-plan sales business model and projects that offer better margins.
On the other hand, the research firm has downgraded its recommendation for the stock of the Export Development Bank of Egypt (EBE) from buy to hold.
However, the research firm has maintained the same moderate risk rating, and a PT of EGP14.8 per share.
Export Development Bank of Egypt reported a 61% year-over-year rise in profits for the first half of fiscal year 2017/2018 due to a growth in interest revenues.
Net profit stood at EGP 395.9m in the six months ending in December 2017, compared to EGP 246.37m in the same period of 2016.
Interest revenues doubled to EGP 2.17bn in H1 2017/18, from EGP 1.31bn in the corresponding period of the prior fiscal year.
Stand-alone profits increased to EGP 362.7m in H1 2017/18.
Meanwhile, Egypt Free Shops reported a 23% year-over-year drop in consolidated profits for the first half of fiscal year 2017/2018.
Net profit amounted to EGP 47.03m in the six-month period ended December 2017, against EGP 61.23m in the same period of the prior fiscal year, including minority shareholders’ rights, the company said in a filing to the Egyptian Exchange (EGX).
Sales increased to EGP 198.9m in H1 2017/18, versus EGP 185.19m in H1 2016/17.
Stand-alone profits stood at EGP 46.8m in the first six months of the current fiscal year, compared to EGP 60.47m in the corresponding period of FY16/17.