The benchmark EGX30 lost another 0.6% today, clawing its way back after a sharp plunge in the broad-based EGX100 index early in the session triggered an automatic suspension of trading to allow things to cool off. Today’s trading was light, with turnover of EGP 1.1 bn (32.1% below the 90-day average), but still a bit ahead of yesterday’s EGP 940 mn. Local investors were net buyers after initially being hit with margin calls at the start of the session.

The exchange has absorbed a one-two punch delivered over two days — first by foreign investors, then by locals — that has wiped out all of the gains the bourse had made since the start of the year. The EGX30 is now at its lowest level since October 2020 and is down 3.5% year-to-date, but is still nearly 30% up from the lowest point it touched during the pandemic-induced sell-off a year ago.

Time to take a breather? A veteran market watcher we spoke with just before dispatch told us he thinks the EGX coming back from a sharp selloff early in the session suggests that the selldown may have lost steam and investors are now moving in from the sidelines to pick up well-priced names. Still, with three weeks left until Ramadan (when cash demand from retail investors is high)…

So, what happened? A pullback by foreign investors yesterday touched off today’s wave of selling (probably forced, early in the session) by retail investors, analysts tell us. Foreign fund managers have been moving out of emerging markets — equities and fixed income alike — since mid-February, attracted by rising US treasury yields, says Pharos Head of Research Radwa El Swaify. A noisy political backdrop that includes uncertainty about talks over the Grand Ethiopian Renaissance Dam could also be dampening foreign appetite, adds Abou Bakr Emam, head of research at Sigma Capital.

Critically, there weren’t many foreign investors left in the market compared to their pre-pandemic appetite for Egypt. Many who left in the global risk-off last year are still sitting on the sidelines. Where allocations to Egypt from frontier fund managers were in the 10-11% range before covid-19, Egypt is now down to 7-8%, as we noted last week. Conventional wisdom is that it will take a wave of compelling IPOs to bring global fund managers back en masse.

That’s left domestic investors in the driving seat. Since the second half of 2020, they’ve accounted for 60-70% of market turnover every day, and where a foreign or domestic institution is more likely to take a “buy and hold” approach, individual investors trade on momentum, jumping in and out of shares (or the market as a whole) based on news flow, rumors and their gut feelings.

The speed and sharpness of yesterday’s selloff probably forced “a series of margin calls” for retail investors, Prime Research suggested in a note today, extending the slump into today. And Sigma’s Emam thinks domestic institutions probably don’t have the liquidity they’d want to have to jump into the market when margin calls are still ringing in the air. He also notes that the market hasn’t exactly cheered the end of Eastern Tobacco’s market monopoly with the prospect of a second license being issued. And why would they? Eastern is an easy play if you’re in the mood for a steady dividend payer.

A top exec at one of the country’s most visible publicly traded companies says it isn’t time to panic. Speaking on condition he not be named, the veteran market watcher said he thinks foreign investors were net sellers yesterday “not because they were exiting the market in a bulk — it’s foreign investor, singular, not foreign investors, plural. If it was the latter, the trading in my share would have been big blocks, not the 100 here and 100 there that I saw yesterday.”

One catalyst to watch for: Dividends in general, and Telecom Egypt’s in particular. Now that EFG Hermes has said it is not paying a cash dividend this year, many foreign pension funds — who invest for dividends before they do for share appreciation — will be waiting for next week before making a decision on Egypt. That’s when Telecom Egypt’s OGM is set to discuss (pdf) a proposal to bump the teleco’s dividend by as much as 50% after Vodafone Egypt approved a chunky EGP 2 bn cash dividend, of which some EGP 900 mn will be pocketed by TE.

Surely the good news on domestic macro indicators and the vaccine rollout should boost sentiment? Don’t count on it, Emam says. The top exec agrees, saying he believes that recent talk of there being a third wave of covid-19 — one that could gather strength during Ramadan — is probably at play. “Volumes are low, and retail investors are not sophisticated. They see London, France and Germany closing up shop? They get hit by margin calls? And people need cash ahead of Ramadan anyway. I expect some thinness in volumes for the next while.” El Swaify, meanwhile, says it’s an open question what happens next. With retail investors now accounting for 70% of market activity, margin calls just magnify both volatility and the magnitude of the swings that follow.

In the green today: CI Capital (+3.4%), Orascom Development (+3.0%) and GB Auto (+2.7%).

In the red: Qalaa Holdings (-5.8%), Orascom Financial (-5.2%) and Export Development Bank (-5.1%).