Markets January 2010 EGX - 2009 in Review Macro briefing Though not at the same pace as the last three years that averaged 7% in its real GDP growth, the Egyptian economy kept its robust growth in fiscal year 2008/09, growing by 4.7%, despite the negative effects of the world recession, thanks to the economic reforms adopted by the government since 2004. It is worth noting that the Egyptian fiscal year ends in June, which in turn means that the 4.7% growth in GDP was a record by all means, as the period from July 2008 to June 2009 carried the worst phase of the world economic crisis. Egypt real GDP is projected to grow by at least 4.5% in 2009/10. The Egyptian Stock Exchange Performance in 2009 The Egyptian stock exchange, represented in the EGX30 Index, struggled through 2009 to regain back what it lost since mid 2008, when the world financial crisis emerged. The EGX30 Index, which measures the performance of the most active stocks traded on the Egyptian exchange, grew by about 35.1% throughout 2009. The downward spiral, which started in mid-2008 extended through the first 2 months of 2009. The EGX30 touched a bottom at 3,380 points on February 5th, 2009. Starting March 2009, the EGX30 started to recuperate following recovery witnessed in the international stock markets, until it reached highest mark at 7,280 points in late October 2009. Despite the fact that the Index recorded a gain of 58.4% on the 26th of October 2009, compared to the end of 2008, a series of unpleasant events have had negative impacts on the Index performance and the stock market in general ever since. The tax claim on Orascom Telecom Holding’s Algerian subsidiary, followed by France Telecom’s bid to acquire 100% of Mobinil, OTH’s telecom arm in Egypt, has all caused panic and forced investors to exit OTH’s share, which plummeted by almost 31.5% between the end of October and the end of the year, after these series of hideous news for the blue chip. It is worth mentioning that OTH’s weight in the EGX30 Index amounts to over 12%. Also, the Dubai World debt crisis has negatively affected the stock market performance, as the Index severely dropped by almost 8% on one session, on the back of fears of the crisis spillovers over the local banks and companies and over reaction of investors, who randomly sold their positions, preferring a “wait and see” status. The EGX70 Index, which measures the performance of the 70 most active stocks (excluding the EGX30 Index constituents) followed suit and grew by 33.3% in 2009, after attaining a gain of 95.8% in October, as opposed to 2008 closing. The drop was a result of the aforementioned reasons. The Egyptian Stock Exchange EGX Indices performance in 2009 Yearly change Year Year 12/31/2008 12/31/2009 % high low Faisal Hasan, CFA EGX 30 4,596 6,209 35.1% 7,280 3,380 Head of Research EGX 70 482 643 33.3% 944 421 [email protected] Phone No:(965) 22951270 Source: Mubasher & Global research Mahmoud Soheim Head of Egypt Research Moderate growth expected at the beginning of 2010 and strong performance thereafter… [email protected] Tel: (+202) 37609526 Ahmed Abu Hussein, CFA We believe that the first quarter of 2010 will not witness any severe ups or downs, however as the 2009 Financial Analyst financial results will begin to appear, the stock market will react positively and is expected to restart its [email protected] journey north. Thereafter, as the world economic performance is anticipated to ameliorate, the Egyptian Tel: (+202) 37609526 stock market will gradually regain strength and surges are expected, led by the blue chips, especially after Cherine Fayez Farkouh, CFA Financial Analyst the first quarter of 2010 financial results are posted by May 2010. [email protected] Tel: (+202) 37609526 Afterwards, the stock market will witness relative stability and steadily confidence will be regained to the Radwa Weshahy investors, who were quick profit takers throughout 2009, which in turn halted any real gains for the Financial Analyst market. [email protected] Tel: (+202) 37609526 1 Global – EGX – 2009 in Review EGX30 & EGX70 Indices performance in 2008 and 2009 Source: Mubasher & Global research Stock Market Indicators since 2005 2005 2006 2007 2008 * 2009 * 1- Trading Aggregates Total Volume (bn) 5.3 9.1 15.1 25.5 36.6 Volume of Listed Securities 4.2 7.8 11.4 21.9 28.6 Volume of Unlisted Securities 1.1 1.3 3.7 3.6 8.0 Total Value traded (LE bn) 160.6 287.0 363.0 529.6 448.2 Value traded (Listed Securities) 150.9 271.1 321.5 475.9333.5 Value traded (unlisted securities) 9.7 15.9 41.5 53.7114.7 Total number of transactions (mn) 4.2 6.8 9.0 13.5 14.6 Number of transactions (Listed securities) 4.0 6.6 8.7 12.8 13.5 Number of transactions (unlisted securities) 0.2 0.2 0.3 0.7 1.1 Average daily value traded (LE mn) 645 1,176 1,488 1,656 1,822 Average daily value traded (listed securities) 606 1,111 1,318 1,436 1,356 Average daily value traded (unlisted securities) 39 65 170 220 466 Turnover Ratio ** 31.1% 48.7% 38.7% 70.3% 49.9% Non-Arab foreign participation as a % of total value traded 16.4% 16.6% 19.2% 20.0% 12.7% Arab participation as a % of total value traded 13.9% 13.6% 12.5% 10.0% 6.3% Number of trading days 249 244 244 244 249 2- Listed Companies Number of listed companies 744 595 435 373 306 Average Company Size (LE mn) *** 613 897 1,766 1,259 1,633 Number of traded companies 441 407 337 322 289 Number of Traded Companies as a % of Listed Companies 59.3% 68.4% 77.5% 86.3% 94.4% Market capitalization end of year (LE bn) **** 456 534 768 474 500 Market capitalization as % of GDP 74% 72% 86% 46% 48% 3 - Market Indices Performance EGX 30 Index (LE) 146% 10% 51% -56% 35% EGX 30 Index (US$) 157% 11% 57% -56% 36% EGX 70 Index 0% 0% 0% -52% 33% EGX 100 Index 0% 0% 52% -49% 36% DJ EGX Egypt Titans 20 143% 11% 44% -56% 35% S&P/IFCI Price Index 159% 10% 52% -56% 35% MSCI Price Index 155% 15% 55% -54% 33% * After excluding deals ** Turnover Ratio (%) = value traded of listed shares/ market capitalization *** Average Company Size = market capitalization end of year / no. of listed companies **** Market Capitalization = no. of listed shares x market price end of year Source: EGX Annual Report 2009 2 Global – EGX – 2009 in Review Monthly Performance in 2009 Market Capitalization (as % of GDP) Source: EGX Traded Volume Source: EGX Traded Value Source: EGX 3 Global – EGX – 2009 in Review Price to Earnings Ratio in 2009* Source: EGX Annual Report 2009 Dividend Yield in 2009* Source: EGX Annual Report 2009 *P/E and DY ratios are based on the most active companies only. Sectors’ Indices YTD Performance Sector Indices 12/31/2008 12/31/2009 Yearly change % Construction and Materials 864 1,481 71.4% Real Estate 670 1,118 66.9% Banking 845 1,249 47.9% Basic Resources 550 763 38.7% Financial Services (Excluding Banks) 528 725 37.2% Health Care and Pharmaceuticals 972 1,273 31.0% Personal and Household Products 492 533 8.4% Food and Beverage 915 974 6.4% Industrial Goods and Services and Automobiles 1,560 1,651 5.8% Telecommunications 478 502 5.0% Travel and Leisure 565 585 3.5% Chemicals 789 762 -3.4% Source: EGX 4 Global – EGX – 2009 in Review Banking and Financial Services Sectors The Egyptian banking sector kept its robust position amid the financial crisis. This came on the back of the sectoral reforms that were implemented by the government since 2004, as well as the successful decisions undertaken by the Central Bank of Egypt (CBE), which prevented the Egyptian banks from the implications of the turmoil that hit the international banks all over the world. This was reflected on the performance of banks in the stock market, as the sector’s index was among the best performers in 2009, realizing a growth of 47.9%, as investors eyed the banks’ stocks as good investment opportunities, and the sector regained approximately its levels prior to the crisis. We expect a better performance for the sector in 2010, given the continuing prospering monitoring of the CBE, as well as the forecasted recovery in the international economy. Though it did not rebound at the same pace of the banking sector index, the financial services sector was also among the top performers over 2009, despite the fact that the crisis mainly hit the world financial sectors. The financial services sector index excluding banks was able to realize a 37.2% gain in 2009, and we expect a better performance in the year to come, especially as the effects of the financial crisis are anticipated to be diminishing in 2010. Real Estate Sector Although the real estate sector in Egypt witnessed some turbulence during late 2008 and early 2009, the sector started to show signs of recovery throughout 2009. Owing to the fact that the real estate market in Egypt is a cash market and developers adopt an off-plan sales model, the slow-down witnessed in the sector was an outcome of the wait and see status that prevailed the market by both developers and investors, not because of a real decline in demand.