VZCZCXYZ0023
PP RUEHWEB

DE RUEHEG #1929/01 2811654
ZNR UUUUU ZZH
P 081654Z OCT 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 3804
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 001929 
 
SIPDIS 
 
DEPT FOR NEA/ELA 
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN EINV EG
SUBJECT: EGYPT'S EQUITY MARKET: IS THERE MORE ROOM TO RUN? 
 
REF: CAIRO 1927 
 
¶1. (U) KEY POINTS 
 
- The Egyptian stock market has been a strong performer in 
¶2009. The large cap index is up over 45% and the broader 
index is up nearly 100%. 
 
- Optimism about the Egyptian economy along with continued 
low commodity prices have been catalysts for buyers of 
Egyptian equities. 
 
- Much of the good news and speculative foreign demand may 
already be priced into the market. The remainder of the year 
should see a greater level of volatility in the market. 
 
------------------ 
A Good Year So Far 
------------------ 
 
¶2. (U) The Egyptian large-cap EGX 30 (formerly the CASE 30) 
index is up more than 45% since the beginning of the year and 
close to 100% from its low in February 2009. This is on par 
with the return of the Israeli TA-25 index and a far better 
performance than any of the markets of the other regional 
Arab states. The broader EGX 70 index is up almost 100% 
year-to-date.  Real estate and construction stocks have been 
the sector leaders and have nearly doubled so far this year 
because of continued demand and lower raw materials prices. 
Other sectors outperforming the index include financial 
services, travel and leisure, and banks. Average monthly 
trading volume on the Cairo exchange in 2009 has been LE31 
billion (US$5.6 billin), down about 30% from 2008. 
 
¶3. (U) There are everal factors driving demand for Egyptian 
equites. First is that there is increased global liquidity 
and a stronger appetite for emerging market equities, some of 
which is flowing into Egyptian stocks which are seen as 
having a relatively favorable risk-reward ratio. Second is 
that prices still appear to be cheap having fallen 56% in 
2008 and ending the year 61% off its yearly high. Also 
contributing to demand are lower interest rates combined with 
sustained (though far lower than last year) GDP growth. 
Indications of economic recovery in Egypt's European export 
markets have also contributed to a level of bullishness on 
Egypt's economic future. 
 
-------------------------- 
The Future is Not So Clear 
-------------------------- 
 
¶4. (SBU) Mark Rorison, Head of Research for CI-Capital 
Research, told us that the performance of Egypt's stock 
market this year has been driven by and has closely mimicked 
the performance of the US stock market.  While he is very 
upbeat on the mid to long term prospects of the Egyptian 
economy, he feels that short term performance of the Egyptian 
equity market does not necessarily reflect fundamentals of 
the Egyptian economy. 
 
¶5. (U) There is no denying that some sectors, particularly 
those that are driven by domestic demand and/or benefit from 
lower commodity prices will continue to do well relative to 
the index. Global equity trends also contribute to the mix, 
and global fund managers who have had a good run so far this 
year, may look to take some profits off the table.  Egypt is 
also a relatively small market both in terms of market 
capitalization and share float.  As the events of the last 
few years have shown, money flows both ways. In emerging 
stock markets, liquidity fears can spur panic selling and a 
run for the door. 
 
------- 
Comment 
------- 
 
¶6. (U) After a disastrous year in 2008, Egyptian stocks 
really had nowhere to go but up, and money has flowed into 
the Egyptian market this year.  As we reported (reftel), 
there is much optimism about the performance of Egypt's 
economy in the face of the global economic downturn.  Much of 
this has already been priced into Egyptian equities.  In the 
Egyptian case, stock market performance may not be as clear 
of a leading economic indicator of corporate performance as 
in other countries. There is a lot that could go right 
(increased FDI, quick turnaround in the economies of key 
trading partners, stimulus driven growth), but a lot could go 
wrong as well (sharp increases in commodity prices, further 
erosion of fiscal discipline, challenges in attracting needed 
infrastructure investment). There is probably still room both 
fr additional speculative investment in selected copanies 
and sectors that are expected to outperfom over the next few 
years, but we expect to see ncreased volatility in Egyptian 
markets as both domestic and international sentiment continue 
to sift rapidly through the remainder of the year. 
Sobey