MARKET WATCH — Volatility in action
MARKET WATCH — Volatility in action
STOCK ANALYSIS: TMG Holding (TMGH)
Written end of March 2024 for Business Monthly - April 2024 Issue
MARKET WATCH
Investors experienced volatility in action during the period from Feb. 15 to Mar. 15 which saw some stocks fluctuate by as much as 40% in any given week. The period witnessed several milestones on the macroeconomic and stock market fronts.
On the macro front, the market was surprised on Mar. 6 with a trifecta of major events. The Central Bank of Egypt (CBE) decided to hike rates by 6 percentage points on top of the 2 percentage points implemented earlier on Feb. 1, reaching a corridor of 27.25-28.25%. Also, the CBE decided to allow the Egyptian pound to float freely against the U.S. dollar to as high as EGP50, a 40% devaluation. Also on the same day, the Egyptian government announced reaching an agreement with the International Monetary Fund (IMF) to amend its loan agreement and raise it from USD3 billion to USD8 billion.
On the stock market front, the EGX 30, the market bellwether, hit an all-time high of 34,499 on Mar. 11. By then, investors were all upbeat following the EGP devaluation and despite the more restrictive interest rate environment. The decisions removed a major obstacle for foreign investors to invest in Egypt now that the EGP was said to be floating freely. Indeed, the percentage participation of foreign investors on the EGX more than doubled from around 6% in 2023 to a high of 15%. Also, the market daily turnover approached the EGP10-billion mark, an unprecedented level.
During the period, the EGX 30 rose 8.3% to 31,316.43, but its small-cap counterpart the EGX 70 EWI fell 5% to 6,884.72. The former’s performance was led by TMG Holding (TMGH, up 70%) which continued to benefit from the Ras El-Hekma USD35-billion deal. Also, CIB (COMI, up 11%) helped fuel the index performance as the single Egyptian stock most favored by foreign investors.
The period also saw some of the large-cap stocks deliver outstanding performance, the likes of Orascom Construction (ORAS, up 46%), Elsewedy Electric (SWDY, up 28%), E-Finance (EFIH, up 45%), and Fawry (FWRY, up 38%). The former two are among the beneficiaries of a stronger U.S. dollar, while the latter two have been laggards for so long. Ironically, the same stocks that propelled the market’s main index higher during the period were the ones that dragged it lower by its end. For instance, TMGH and COMI fell from an intraday high by 16% and 8%, respectively, in the last week of the period.
As has been the case before, a sudden EGP devaluation will eventually support Egyptian stocks performance. Indeed, the market quickly turned its negative reaction into positive before paring its gains quickly. We could say that the market was trying to filter out the light-hearted before resuming its upward trend, especially after the CBE canceled its scheduled Mar. 28 meeting, suggesting a pause on interest rate hikes for at least two months until the following meeting on May 23.
STOCK ANALYSIS
TMG Holding (TMGH)
Who would have thought that the giant would awaken from its 16-year sleep? Having gone public in late 2007, TMG Holding (TMGH) only recently led the market to become the EGX’s second most valuable company. At an intraday high of EGP91.40, TMGH’s market cap topped EGP188 billion on Mar. 5, closely behind CIB’s (COMI) EGP230 billion that day. Interestingly, TMGH’s weight managed to exceed COMI’s in the EGX 30 Capped index due to the way the index is set up, where any stock has a ceiling of 15% that is only set every three months. During the period, TMGH traded EGP12.2 billion worth of shares between a low of EGP45 and a high of EGP91.40, a 103% gap!
