Beltone: Egypt’s market is Still Clearly Riding a Positive Trend

Beltone Financial noted, in a recent report, that Egypt’s market is still clearly riding a positive trend and despite the aggressiveness of the selling waves market is still looking healthy on the long term.

It added that the Market is still over leveraged  and there is no decent liquidity in retail portfolios, which justify the weakness. Everybody simply wants to buy, but most of them are fully invested.

Beltone Financial noted that Institutions have generated some liquidity from their recent selling, and should lead the next buying wave, yesterday institutions; Foreigners and Arabs were net buyers. However, it was evident yesterday that there were some big tickets hitting the market in many big names, leaving stocks like ETEL trading at limit down. While most of the retail dominated stocks led the panic.

The company said that there were no fundamental negative news out on the market and that this is just an aggressive profit taking wave which is usual with Egypt .

Beltone expected a fresh wave of buying with the presidential elections, especially when actual news and announcements start to flow. End of May, elections should be finalized, and by then we can start seeing positive news flow. This is very similar to what happened in Egypt in 2004-2010 phases, where news flow managed to support the market trend for a very long period. Especially with strong expectations of Gulf support, in addition to the harmonic environment between the current/expected regime and the state bodies.

The market started to show very decent opportunities which in Beltone’s opinion should not be missed despite lacking the short term liquidity that can lift the market higher. even if the market will take some time around these levels, and even if we are going to see further correction, Beltone highly advised to start looking at building long term positions in the market.

The Egyptian stock Market recently witnessed a selling wave which took the index down 13% on relatively decent volumes with continuous failing attempts to respect any short term technical support. This followed a very decent uptrend that took the index in a much extended overbought phase that started in November 2013, with signs of relative stability after the turbulence that was caused with the overthrow of the previous regime last June.

Beltone listed the positive sentiment triggers for the uptrend which were the interest rate cuts and the significantly decent local liquidity. especially with the scarcity of other investment options, Gulf political and financial support and inflows, the improved repatriation mechanism, the political road map and the relative political stability, constitutional voting which delivered a strong message for the support of the mass population to the political road map, and Upgrading fair values in many research houses, that reflected an improved micro situation.

The main trigger that kept supporting the market was actually the expectations of General Sissi running for presidency, which indicates a very smooth election process and eliminates a major risk element of election developments as General Abdel Fattah El-Sissi is seen by many Egyptians to be a very popular candidate and that he can easily win without much turbulence. 

With the actual announcement of General Abdel Fattah El-Sissi to resign and run for presidency, those who bought the rumor, has decided to sell the fact. The main selling wave started by the profit rich local institutions that decided to book Q1 profits with an aggressive selling wave. 

Add to this, the market extremely over leveraged, with retail investors stretching their borrowing positions, which triggered many margin calls and reduced lending abilities by brokerage companies. 

As indicated in the below chart, the market has witnessed a bloody week, and closed at a significantly low level yesterday with many stocks trading at their limit down, despite the strong open. 

The market last prints were significantly lower than the day’s VWAPs which indicate a new red open today, even without further correction. This indicates that the EGX30 index will open to a strong support levels of 7,200- 7,300, down from the high last month of 8,600.

Beltone noted that the market proved that investors still respect some investment stories and are not willing to get out of them even in a panicking theme. Stocks like COMI, ORWE, AUTO, CIEB … etc have showed a relatively stable performance that reflects decent institutional interest, and proved that the selling activity is not a liquidation panic across the board. 

Look at names like HRHO, which is trading below the previously announced buy back price of 11.50. Real Estate stocks like OCDI and PHDC can see a decent upside going forward. Retail dominated high beta stocks are yet to be over volatile on the short term.