MARKET WATCH: No Traders’ Heaven
STOCK ANALYSIS: Ibnsina Pharma (ISPH)
Written for Business Monthly - June 2022 Issue
MARKET WATCH
No Traders’ Heaven
By mid-May, the stock market was deep in the red, with the EGX 30 down 11.8% and EGX 70 EWI down 17.1% year-to-date. Meanwhile, other Middle Eastern emerging markets were up: Saudi Arabia, 16.6%; Abu Dhabi, 11.8%; Dubai, 7%; and Qatar, 10.7%. Ironically, Saudi Arabia, the U.A.E., and Qatar peg their currencies to the U.S. dollar, which means their central banks follow in the footsteps of U.S. Federal Reserve interest rate hikes. Conventional wisdom is that higher interest rates are bad for investment, hence bad for stock markets. However, this has, so far, proven wrong in the GCC, thanks to Brent oil prices up 44% year-to-date by mid-May. A higher oil price means higher profits for oil exporters and more liquidity in their economies and stock markets.
But here at home, we see trading liquidity drying up, especially after the introduction of one-year 18% certificates of deposit issued by state-owned banks. That attracted more than EGP 600 billion ($32.3 billion) from the banking system and stock market. After all, why would investors risk their money in a downtrend, volatile market? No wonder the number of declining stocks has outnumbered advancing shares 3-to-1 since the start of the year.
From April 15 to May 15, the EGX 30 was down 1.4%, while the EGX 70 EWI was up 2.8%, barely recovering its losses from the prior period.
Certain small-cap stocks became favorites again. For instance, Mansoura Poultry (MPCO) jumped 46% during the period, followed by Arab Co. for Asset Management & Development (ACAMD), up 41%, and Egytrans (ETRS), up 25%. Meanwhile, the five stocks that recently saw sizeable stakes sold to ADQ Holding ended the period mixed. Three of them rose, led by Alexandria Container Handling (ALCN), up 21%, followed by Abu Qir Fertilizers (ABUK), up 14%, and MOPCO (MFPC), up 7.5%. However, EGX 30 heavyweight CIB (COMI) pulled back some 5%, while Fawry (FWRY) fell 3.5%.
Elsewhere, EFG Hermes Holding (HRHO), which was subject to a potential acquisition by First Abu Dhabi Bank (FAB) at a premium to market price, fell 4.9% after FAB rescinded its offer. Indeed, with liquidity drying up, average daily turnover (excluding deals) has been falling off to just above EGP 800 million. More recently, the average daily turnover was much lower. It is now clear that the Egyptian stock market has become more of an M&A playing field and less of a traders’ heaven.
STOCK ANALYSIS
Ibnsina Pharma (ISPH)
In times of volatility and downtrend markets, investors might think they would be better served if they hid in stocks of companies in defensive sectors that have growing earnings and pay some dividends. Unfortunately, while Ibnsina Pharma (ISPH) ticked all the boxes, the stock has been on a downward spiral for the past three years, down an alarming 75% by mid-May. This year alone, the stock is down 43.7%. By mid-May, the stock was trading at 7.5 times its last 12- month earnings, representing another exclamation point in a nonsensical market.
