MARKET WATCH: Winter Comes Early
MARKET WATCH: Winter Comes Early
STOCK ANALYSIS: Rowad Tourism (ROTO)
Written for Business Monthly - December 2021 Issue
MARKET WATCH
Winter Comes Early
The period from Oct. 15 to Nov. 15 saw the market’s two leading indices switch places. The EGX 70 EWI erased the gains of the past six months, finishing down 0.7% for the year to date. Meanwhile, the EGX 30 augmented its year-to-date gain to 6%. That was the culmination of the EGX 70 EWI falling 19.2% and the EGX 30 gaining 4.6% during the period.
The indices had a typical tug of war, with the former suffering from speculative trades turned sour. The market regulator started cracking down on unscrupulous traders and canceling their transactions. It was just a matter of time before leveraged trades began to unwind as margin calls rang up throughout the market. Retail investors got hurt the most, while institutional investors waited for the dust to settle. Declines outnumbered advances by a ratio of 5-to-1 during the period. On average, gainers added about 9%, while losers gave up 20%.
Let’s start with the performance of e-finance (EFIH), the most recent initial public offering. The stock defied the EGX 30 performance, pulling back by 9.2% to EGP 17.51, albeit still 25% above its IPO price. CIB (COMI), the EGX 30’s top constituent, rose 14.7%, contributing the most to the index’s performance during the period, followed by Cleopatra Hospitals Group (CLHO), which rose 16.4%. Meanwhile, Eastern Company (EAST) fell 4.2% and Fawry (FWRY) 18.2%.
Meanwhile, the afterparty was full of small-cap names that were once the market’s luminaries. Big losers included Rowad Tourism (ROTO, - 73%), Real Estate Egyptian Consortium (AREH, -69%), Zahraa El-Maadi Investment & Development (ZMID, -67%), and National Real Estate Bank for Development (NRPD, - 63%). Still, three of the four are up for the year: ROTO (19%), AREH (72%), and ZMID (140%). NRPD is down 22%. These four are just a sample of the many EGX 70 EWI constituents whose stock prices increased in the first eight months of 2021 for no fundamental reasons before succumbing to the pressures of margin calls. For them, winter came earlier than expected.
With the capital gains tax issue put to bed, market participants are assessing their exposure against the backdrop of other variables. Locally, how the Central Bank of Egypt deals with rising inflation will set the stage for interest rates next year. Globally, how hawkish the rest of the world’s central banks become will be critical, especially after the new COVID-19 variant, Omicron, surfaced in South Africa.
STOCK ANALYSIS
Rowad Tourism (ROTO)
By mid-October, the regulator had rejected Rowad Tourism’s (ROTO) motion for a 20-for-1 stock split. In early November, the company denied rumors of an imminent merger with another EGX-listed company, Real Estate Egyptian Consortium (AREH). ROTO saw several transactions executed on the stock canceled and a couple of its shareholders trimming their stakes. These developments put ROTO into a freefall that cost three quarters its value (-73.4%) during the period, with an intraday high of EGP 55.45 on Oct. 17 and an intraday low of EGP 12.81 Nov. 11.
