For the last two months, both large and small caps have been on the rise, with the latter outperforming the former on a year-to-date basis by a margin of 4-to-1. Indeed, since the start of the year, the EGX 70 is up 47.9 percent, while the benchmark EGX 30 is up by just 12 percent. In the period from June 15 to July 15, the latter advanced 2.6 percent to 13,822, while the EGX 70 advanced a full 10.6 percent to 685. Advances outnumbered declines by a ratio of 2-to-1. The market seems to have taken in stride the surprise interest rate hike by the Central Bank of Egypt in early July. Once again, the CBE bucked expectations by raising rates by another 200 basis points, for a total 700-point increase since the float of the Egyptian pound last November. 

Historically, the stock market takes a nosedive when interest rates rise, as investors price in higher discount rates. However, the Egyptian Exchange has been a different story, with the benchmark EGX 30 advancing following rate hikes since March 2016. This could be because higher interest rates in Egypt often lead to higher inflation rates, and in turn, weaker purchasing power, which investors opt to preserve by parking their funds in an asset class that moves up in tandem with prices.

In this period, the gainers’ list included a few small-cap names. For example, South Cairo & Giza Mills (SCFM) and Egypt Aluminum (EGAL) both jumped 75 percent, to LE 54.02 and LE 60.73, respectively. On one hand, SCFM posted 562-percent growth in earnings to LE 10.6 million in May alone, compared to the LE 24.25 million it earned in the nine-month period ending in March. EGAL also posted a huge jump in its earnings in the 11-month period ending in May, to LE 1.3 billion compared to only LE 30.8 million in the same period last year, thanks to an 82-percent jump in revenues to LE 8.19 billion. Investors bid up the prices of other stocks in the flour milling and aluminum sectors in anticipation of similar results.

Most fertilizer producers also saw their stocks advance, led by Misr Fertilizers Production Co. (MFPC), which climbed 31.3 percent to LE 86.03, and EFIC, which was up 10.3 percent at LE 18.49. Banking stocks advanced in the wake of the surprise rate hike, but it was mostly smaller banks leading the pack, such as Union National Bank - Egypt (UNBE), up 19.4 percent at LE 7.14, and the Housing & Development Bank (HDBK), up 17.7 percent at LE 52.39. On the other hand, real estate developers took a backseat with a mixed performance.

© Business Monthly 2017