Egypt stock market eyes short-selling, two listings by year’s end

Egypt’s stock exchange aims to introduce short-selling of shares before the end of the year, said its chairman in two interviews on Tuesday.

Short-selling, allowing securities to be sold before they are acquired, aiming at increasing liquidity in a market that is anticipating a wave of initial public offerings and stake sales by public-sector companies.

“Before the end of the year we are going to see short selling up and running and being implemented,” Mohamed Farid said in an interview with Bloomberg Television. “We are talking about a complete securities borrowing and lending mechanism associated or coupled with short selling.”

All technological requirements have been fulfilled and 25 to 30 brokers are registered to operate shorting, he further told Bloomberg in London.

Several exchanges in the Middle East, including those of Saudi Arabia and Abu Dhabi, have introduced the mechanism in the past few years, but liquidity is still low. Companies on the Egyptian exchange have $51 billion in combined market value, Farid said.

The Egyptian bourse also plans to attract further two stock listings before the end of this year as it looks to continue its run as one of 2019’s best performing emerging stock markets, Mohamed Farid told Reuters.

Egypt’s benchmark EGX 30 Index rose 15 percent in local-currency terms and 25 percent in dollars this year. The gauge jumped in August by the most since March 2018 as the central bank cut interest rates amid slowing inflation.

Egypt has witnessed a huge wave of foreign investment since the government embarked on a series of reforms in late 2016 tied to a three-year $12 billion IMF loan. The reforms included weaning the economy off subsidies, introducing value-added tax, and a sharp depreciation in the currency.

“You wouldn’t find many countries that have such a complete story as Egypt in terms of the macro-economic reforms that took place,” Mohamed Farid Saleh told Reuters. “The reform story has been important for foreign investors.”

Foreigners account for around 35 percent of trading on the Egyptian exchange, with net purchasers of nearly 50 billion Egyptian pounds ($3 billion) of securities since the reforms began in 2016, Reuters quoted Farid as saying.

These figures are compared with less than 10 billion Egyptian pounds in the three years before the reforms, Farid said.

The foreign investors have also snapped up 31 billion pounds of local bonds listed on the exchange, compared with 1 billion pounds before 2016, he added.

Farid told Bloomberg that at least three companies that had planned initial public offerings by December now have decided to delay them to next year.

The Egyptian exchange was in talks with two companies operating in garments and technology businesses, expected to list before the end of the year, Farid told Reuters.

A third company within the financial sector, owned by the state, was likely to be listed at some point, but the timing would be determined by a political decision, he added.

He said there had been some delays in the IPO process, explaining that “it’s a lengthy process and is taking more time than expected”.

Egyptian government has been seeking to list some of the swathe of companies it owns as part of an effort to clear room in the economy for private sector growth.

But the Egyptian exchange was also active in encouraging private sector firms to list, Farid said.

“One of the main requests of asset managers and fund managers is to find sizeable companies and this is why we’ve changed our modus operandi, so rather than being demand-driven we are trying to convince companies of the merits of listing,” he said.

“We should be seeing it very soon. Thirty companies will be included, including ETFs,” he said.

Companies from sectors including technology, education and health care have attracted appetite from investors for new offerings, Farid told Bloomberg.

When it comes to IPOs of government-controlled stakes, Farid said to Bloomberg that the financial sector “is taking the lead.”

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