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Thursday, 16 March 2023

EGX suffers biggest single-day loss since 2020 on global banking turmoil

Global banking turmoil hits EGX: The EGX30 saw its biggest single-day drop in three years yesterday as the fallout from the US banking crisis continued to send tremors through global financial markets. The benchmark index slipped 4.2% during trading, its worst day since 18 March 2020 at the height of the covid-triggered market panic.

The index has now fallen almost 11% this week: The EGX30 has suffered a four-day losing streak in the wake of the collapse of three banks in the US last week, almost erasing all of its 2023 gains.

Leading the declines: Qalaa Holding suffered the heaviest losses, slipping 14.9%, followed closely by Sidi Kerir Petrochemicals (-13.2%), and Heliopolis Housing and Development (-13.1%). Only two EGX30 companies — CIRA and Eastern Company — finished higher.

Banking stocks continued to fall: The EGX30 Banks Index fell another 3.2% yesterday, taking its losses to more than 10% since Silvergate Bank announced last Wednesday that it would be winding down operations. Credit Agricole Egypt led declines, falling -8.3% during the session, while Export Development Bank of Egypt (-7.6%) and QNB Alahli (-7.4%) also saw hefty losses. CIB — the largest constituent of the EGX30 — slipped 1%, leaving it down 8.6% this week.

Contagion: The declines on the EGX are being triggered by foreign investors exiting the market amid panic triggered by the collapse of Silicon Valley Bank (SVB) and the potential contagion in European and Asian banking sectors, EGX board member and president of 3way Securities Rania Yacoub told Enterprise. Fears that the crisis could cause embattled Credit Suisse to collapse caused shares in the banking giant to plunge as much as 30% yesterday, triggering a heavy sell-off in European bank shares.

Okay, but if European shares are tumbling, why are we going along for the ride? There are probably two factors. First, fund and portfolio managers might choose to cash out gains in Egypt to cover losses elsewhere. Second: There’s a bit of a risk-off sentiment these days, so it’s natural enough for EM to get hit. And third: There’s no more a “herd” investor than a local day trader — retail investors accounted for 68% of all selling activity yesterday.

Local factors also played a part: Arab and foreign investors also sold shares ahead of an anticipated rate hike by the Central Bank of Egypt later this month and EGP-USD exchange-rate volatility, said Prime Securities Managing Director Shawkat El Maraghy. Some analysts expect the central bank to deliver a huge 300-bps rate hike when the Monetary Policy Committee meets on 30 March in a bid to curb soaring inflation and bring investors back into the market.

SOUND SMART- What does all this mean for the privatization program? It’s TBD. Renewed volatility in the global financial markets comes as Egypt is moving ahead with the sale of stakes in state companies to investors as part of its rebooted privatization program. Volatility and a downward swing in prices of public assets is generally a bad thing. At this juncture, though, we’d be much more concerned if the state were planning to exit stakes through IPOs — but senior officials have made clear they prefer (at this juncture) to do stake sales through private placements rather than via initial public offerings. Privatization drives have been derailed several times by global market turmoil.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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