MARKET WATCH: Contagion
MARKET WATCH: Contagion
STOCK ANALYSIS: Lecico Egypt (LCSW)
Written for Business Monthly - April 2023 Issue
MARKET WATCH
The period from Feb. 15 to Mar. 15 started normally with some profit-taking activity pulling market indices slightly lower until Mar. 12. That Sunday marked the first trading session after a tumultuous weekend in the United States and global markets. News that the sixteenth largest U.S. bank, Silicon Valley Bank, was on the brink of failure sent global markets teetering as events from the Global Financial Crisis 15 years ago began to influence investor behavior. Ironically, Egyptian stocks felt the brunt of volatility, even more than global markets. The EGX 30 and EGX 70 EWI fell 16% and 14.6%, respectively, during the period. Throughout four trading sessions from Mar. 12 through Mar. 15 alone, the EGX 30 lost 10.5%, and the EGX 70 EWI 16.2%. Not surprisingly, declines beat advances by a ratio of 5 to 1 during the period.
Nonetheless, some stocks delivered positive performances during the period, led by Arab Aluminum (ALUM, up 37%), extending its year-to-date gain to 129%, making it the top performer in 2023. Also, certain pharma stocks seemed to attract investor attention, with Memphis Pharmaceuticals (MPCI, up 31%), Minapharm Pharmaceuticals (MIPH, up 17%), and Arab Drugs (ADCI, up 10%). Investors may have been picking up some pharma stocks in anticipation of a potential increase in the price of medicine. Still, other pharma stocks lagged, like Rameda (RMDA, down 24%), EIPCIO (PHAR, down 19%), and Cairo Pharma (CPCI, down 9%).
Elsewhere, Egyptian Financial & Industrial Co. (EFIC), a producer of phosphate fertilizers, jumped 15.8%, extending its year-to-date gain past 51%. The company’s strong fourth-quarter earnings continued to increase the stock’s performance. Also, International Agricultural Products (IFAP, up 25%) delivered a double-digit performance. The company owns stakes in several fertilizer producers. Meanwhile, Cairo Poultry (POUL, up 18%) reversed its negative year-to-date performance after headline and core inflation rates in Egypt hit new highs, led by food.
Speaking of which, investors were probably preparing for another tightening cycle by the Central Bank of Egypt, given rising inflation. Prices, which usually increase during Ramadan, are already up 11% year-to-date but around 32% year-on-year. That was partly led by a stronger U.S. dollar, which rose more than 25% year-to-date. With negative nominal interest rates expected to remain throughout most of this year, investors will likely look for asset classes to preserve the value of their money. That would include tangible assets, gold, and, definitely, stocks. But until global market volatility subsides, stocks will be the last resort.
STOCK ANALYSIS
Lecico Egypt (LCSW)
Lecico Egypt’s (LCSW) stock is down 40.5% year-to-date but has recently attracted attention from retail investors. The company’s financial performance did not help much, recording a net loss of EGP 3.2 million in 2022. The company generated operating losses of EGP 31 million in 2022 versus operating profits of EGP 50 million in 2021. During the period, the stock traded 11 million shares worth EGP 7 million, yet fell 34.5%, which led management to buy up to 4% of outstanding shares at EGP 7.9 a share, a steep premium to the market price at the time.
