MARKET WATCH — Bears Overtaking Bulls
MARKET WATCH — Bears Overtaking Bulls
STOCK ANALYSIS: Juhayna Food Industries (JUFO)
Written end of April 2024 for Business Monthly - May 2024 Issue
MARKET WATCH
The positive start we have had so far this year may turn out to be short-lived. Coming off the holy month of Ramadan, the market was on vacation for almost a whole week for Eid El-Fitr. This may have led to a fall in liquidity, an important factor for the market momentum to continue. Meanwhile, volatility continued throughout this period which ran from Mar. 15 to Apr. 15, where all major indices ended down. EGX 30 fell 5.4%, while EGX 70 EWI fell 2.7%. While the two indices held on to their year-to-date gains at 19% and 22%, respectively, both fell in the following days—further paring their gains into the single-digit territory.
Volatility was apparent from the start of the period with EGX 30—the market’s main index—falling more than 2% in seven trading days. Seeing the market fall 4 consecutive days in a row has become prevalent. Technically, the market has officially turned bearish after falling more than 20% off its peak. By Apr. 24, both EGX 30 and EGX 70 EWI were down 22.4% and 23.6% from their peaks. EGX 30’s peak was registered on Mar. 11, while EGX 70 EWI’s was on Feb. 22. In hindsight, EGX 70 EWI has beaten EGX 30 into the bearish territory on Mar.19.
Declines outnumbered advances by a ratio of almost 2-to-1, with both defensive and cyclical stocks feeling the brunt of the market’s downtrend alike. The underperformers’ list included large-cap names, such as Juhayna Food Industries (JUFO, -28%), Contact Financial Holding (CNFN, -25%), Arabian Food Industries (DOMT, -20%), and Orascom Development Egypt (ORHD, -16%). But it was not all red throughout the period, with some retail-favorite stocks leading the outperformers’ list. For instance, Iron & Steel for Mines & Quarries (ISMQ, +30%), Ataqa Steel (ATQA, +25%), and Rowad Tourism (ROTO, +25%) all registered double-digit gains during the period.
Investors are looking for reasons behind the market’s huge sell-off in the last few weeks. Some attribute the drop to local institutions off-loading their holdings to lock in their capital gains. Others attribute it to macro factors that are playing out. For instance, stocks have long been touted as a good inflation hedge. But after March inflation fell surprisingly below market consensus, economists began to tone down their expectations for the remainder of the year to the point that a Goldman Sachs economist penciled in the Central Bank of Egypt (CBE) cutting interest rates as early as May.
This may have led some institutional investors to cash out of stocks in favor of Treasuries which offer annual yields of more than 20%, net of taxes. They may have wanted to capture the currently high yields before they began to fall later in the year. But regardless of the reason behind the market sell-off, volatility is here to stay at above-average levels.
STOCK ANALYSIS
Juhayna Food Industries (JUFO)
At times of volatility, defensive stocks present themselves as a safer option for investors, including food and beverage stocks. However, Juhayna Food Industries (JUFO) was an exception. The stock fell 27.9% during the period from EGP22.23 to EGP16.02 before falling further in the following days. The company reported its 2023 financials where its strong price-led operational growth was muted by foreign currency-related losses. Furthermore, the Egyptian government’s initiative to reduce prices may have cast a shadow over its prospects to maintain this price-led growth momentum into 2024. Some 30 million shares, or 3.2% of the company’s listed shares, worth some EGP525 million changed hands during the period.
