MARKET WATCH — Roller coaster
STOCK ANALYSIS: SODIC (OCDI)
Written end of February 2024 for Business Monthly - March 2024 Issue
MARKET WATCH
2024 started on the right foot, with both leading market indices jumping to Jan. 30. By then, the EGX had hit an all-time high of 30,347.30, crossing the 30,000 psychological level for the first time and rising 22% year-to-date. That same day, the EGX 70 EWI hit 6,940.60, almost crossing its own 7,000 psychological level, ringing up 27%. However, the market was surprised on Jan. 31 when the EGX 30 and EGX 70 EWI plummeted 6.8% and 8.8% in what felt like a roller coaster ride, respectively.
In the following days, the EGX 30 would not cross 30,000 again, while the EGX 70 EWI pressed ahead and passed 7,000 to an even higher level. By then, it was clear: It seemed to be yet another outperforming year for small caps. From Jan. 15 to Feb. 15, the EGX 30 added 10.2%, extending its year-to-date gain to 16.2%. Meanwhile, the EGX 70 EWI jumped 16.4%, pushing its year-to-date gain to 32.3%.
Let’s take a step back. The market sell-off of Jan. 31 started midday after the U.S. dollar hit an all-time high in the parallel market, crossing EGP 70 two days earlier. What triggered the sell-off seems to have been WhatsApp voice messages discussing an imminent transaction between Egypt and the U.A.E. concerning a $22 billion investment in Ras El-Hekma on the North Coast. Back then, nothing was confirmed by either side, but the market took this negatively because it would have meant a drop in the dollar parallel market rate.
Interestingly, investors have jumped on the stock market bandwagon as an inflation hedge against the potential devaluation of the official exchange rate. So, it was conceivable that an expected drop in the parallel market rate would be detrimental to Egyptian stocks. But as the rumors faded with no of cial con rmation and the dollar’s parallel market rate slipped back to the low 60s, the stock market recovered.
It also was earnings season, with banks leading the way. CIB (COMI) reported all-time high earnings of EGP 30 billion (up 84% in 2023). Earnings of Credit Agricole Egypt (CIEB) and Abu Dhabi Islamic Bank Egypt (ADIB) more than doubled to EGP 5.2 billion (up 113%) and EGP 4.7 billion (up 114%), respectively. Such strong bank earnings came against the backdrop of Egypt’s higher interest rate environment, which is expected to be the case throughout this year. Indeed, the Central Bank of Egypt (CBE) increased overnight deposit and lending rates by another 200 basis points to 21.25% and 22.25%, respectively. Although the market consensus was a “hold,” stock prices rose.
STOCK ANALYSIS
SODIC (OCDI)
After Aldar Properties of the UAE acquired an indirect stake of 85% in SODIC (OCDI), trading on the latter’s stock dwindled as expected. More recently, trading activity recovered with 17 million shares changing hands worth EGP 473 million, EGP 103 million of which was on Feb. 8 alone. The stock rose 40% during the period. The market seems to have been betting on the company developing the Ras El-Hekma project, rumored at the time to involve the UAE. With the project confirmed, it now makes sense.
