JUNE 2013 - FEAS

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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013EGYPTIAN EXCHANGEDr. Mohamed OmranChairmanWe sturdily believe that the Revolution ofJanuary 25th offers a unique and historicopportunity to dramatically improve theway Egypt is governed.As we all know, in 2011, a series of events allover the globe has rocked investors’ confidenceover the year starting with the Arab spring, thenthe tsunami in Japan and culminating with theseismic events surrounding the euro zone debtcrisis since the summer.A year ago, Egypt the most populous countryin the Arab world has erupted in mass protestsin January 25th 2011 against the rule of HosniMubarak. Following eighteen days of popularprotests, President Mubarak stepped down onFebruary 11, 2011. The Supreme Council of theArmed Forces (SCAF) assumed the president’sresponsibilities and vowed to oversee apeaceful transition process leading to free andfair presidential elections. Accordingly, SCAFquickly suspended unpopular provisions ofthe constitution and Egypt held its first freeand fair voting on March 19 approving nineconstitutional amendments to pave the way forthe parliamentary and presidential elections.Nevertheless, as Egyptians stood at TahrirSquare and rejoiced at their new-foundfreedom, the lack of security and concern overthe course of political events proved to beeconomically costly. With Egypt’s stock marketclosed for nearly eight weeks, investors wereworried that the full effect of the protests thatousted the President will be even larger thananticipated. However, the stock exchangereopened and proved to be resilient to thepolitical turmoil with a noted demand frominvestors especially Egyptians answering theappeals to help save the exchange and, byextension, the Egyptian economy.After the downturn post the 25th Revolution, theEgyptian Exchange commenced a promotionalcampaign with the aim of rebuilding theinvestors’ confidence in the Egyptian Economyand its Capital Market. The EGX’s delegationconducted comprehensive meetings withvarious financial institutions such as NASDAQOMX and Goldman Sachs Inc. in New Yorkand with London Stock Exchange in London.The campaign also addressed the institutionalinvestors in the Gulf countries where theyshowed their extensive support and confidencein the Egyptian Capital Market and pointed outthe prospects rising from the Egyptian Economyas one of the promising emerging markets.And following the democratic transition processin Egypt, On October 18th the Egyptians havecasted their vote in the wake of their foremostparliamentary elections resulting in the MuslimBrotherhood’s Freedom and Justice party(FJP) and the Nour Party (Egypt’s largestSalafi political party) winning the majority inthe country’s first democratic parliamentaryelection.Following the elections, the Egyptian Exchangehosted a press conference with representativesof the Islamists parties and Liberal andmoderate parties to confirm their support of fairand open exchange policies.We sturdily believe that the Revolution ofJanuary 25th offers a unique and historicopportunity to dramatically improve the wayEgypt is governed. The resulting shift in thepolitical paradigm could pave the way for anew development strategy that combines fastereconomic growth and achieves better equalityin income distribution which in turn have apositive impact on the performance of theEgyptian Capital Market.We do realize that the challenges ahead ofEgypt are not trivial, starting with a politicaltransformation that is still unfolding. However,the will to make a peaceful transition to amodern state where people enjoy dignity, libertyand justice is not dying away. On the contrary,progress is being made every day, thanks tothe spirit of patience, persistence and believesof the Egyptian citizens that the country isawaiting a brighter future.EXCHANGE BACKGROUNDThe Egyptian Exchange (EGX) dates backto more than 125 years. Alexandria StockExchange was officially established in 1883,followed by Cairo in 1903. The two exchangeswere very active as one the oldest FuturesMarket for Cotton in the world back in the 1940’sand the Egyptian Exchange was ranked as thefifth in the world. Nevertheless, the socialistpolicies adopted in the mid 1950 have ledto a drastic reduction in activity on the stockexchange, which remained dormant during1961 till 1992.In an attempt to re-activate the market, thegovernment opted for the public offeringof the state owned enterprises through theprivatization program, which provided theimpetus for its revival.In 1997, The Egyptian Exchange (formerlyknown as Cairo & Alexandria Stock Exchange)started its modernization program in terms oflegislation and infrastructure to keep abreastwith globalization and internationalization.Stocks, bonds and funds are traded on EGX.In addition to a number of structured products,issued by several international financialinstitutions, on the Exchange in-house designedindex, EGX 30 Index, are listed and traded onvarious European Exchanges such as EGX30 Certificates Issuance by The Royal Bank ofScotland (RBS), EGX 30 EUR X-Pert CertificatesIssuance by Deutsche Bank, and EGX 30 OpenEnd Certificates Issuance by Goldman SachsInternational.The Exchange continued its journey ofexpanding its services and products bylaunching NILEX the first market for growingSMEs in the MENA region. NILEX providesmedium and small fast growing businesses,including family-owned businesses, from anycountry and any industry sector, a clear accessto capital and the benefits of being traded.EGX has developed a number of indiceswhich help the investors track the market’sperformance. EGX 20 Capped, EGX 30,EGX70, EGX100, Dow Jones EGX EgyptTitans 20 INDEX, and S&P/EGX ESG Indexwhich is the first corporate governance andsocial responsibility index in the MENA regionin collaboration with the Egyptian Institute ofDirectors and Standard &Poor’s. The EgyptianExchange is governed and regulated by theEgyptian Financial Supervisory Authority (EFSA)that is a single regulatory body governing allnon banking financial services.EGX do not impose any restrictions on foreigninvestment or profit repatriation in the Egyptiansecurities market.No taxes are levied on dividends, capital gainand interest on bonds for individuals, mutualfunds and international funds.FUTURE OUTLOOKEGX will continue exerting efforts to enhancethe efficiency of the market, raise investors’awareness, promote the financial literacy, andimprove the communication between EGX andits stakeholders to further strengthening theirtrust in the market. Moreover, EGX will continueits aggressive marketing plan to attract the bigcompanies to be listed in the market.On the other hand, EGX strives to build onits success by accelerating the introductionof a bundle of new investment products andmechanisms into the Egyptian market suchETFs, sukuks, the Market Maker system whichare expected to be launched in the market soon.PAGE 40
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013EGYPTIAN EXCHANGEThe Egyptian Exchange in 2012The Egyptian Exchange.... The Sole Winner inthe midst of All Economic DifficultiesEgypt has witnessed tough economicconditions in 2012 as the country has passedthrough a series of consecutive politicalevents which had a great impact on Egypt’seconomic performance, where the surroundingcircumstances were not helping to achieve highgrowth rates, improve the investment climate orrestore the investors’ confidence.The Egyptian Economy grew by 2.2% in2011/2012, which is considered a higher ratethan the one realized last year (1.8%), yet it’sstill below the required level that would restorethe Egyptian economy’s strength. The foreigninvestments were also affected, reaching US$ 2.6billion during the first 9 months of the year 2012.Faced by all these economic difficulties, thestate budget deficit inched up to reach 10.8%of the GDP for the fiscal year 2011/2012compared to 9.8% in the previous year. Thiswas accompanied by a decline in Egypt’s netinternational reserves, reaching US$ 15 billionin December 2012 compared to US$ 18 billionin December 2011, which put high pressure onthe value of the Egyptian pound, resulting inpushing the value of the Egyptian pound downto reach 6.32 LE/US$ at the end of December2012 compared 6.032 LE/US$ at the end ofDecember 2011.On the contrary to all other sectors in theeconomy and despite all surroundingdifficulties that led to significant fluctuations inits performance during the year, the EgyptianExchange showed a remarkable performance,growing by 51% in 2012; a level that hasn’tbeen reached since 2007, which is consideredthe highest growth among all emerging anddeveloped markets (after Turkey) in 2012.Likewise, EGX 70 & EGX 100 indices soared by15% & 24%, respectively.Trading volumes have relatively improved in2012 compared to the year before, with thevolume traded reaching 34 billion securities; alevel that hasn’t been reached even in the recentyears pre-revolution. Likewise, the value tradedsoared to LE 185 billion compared to LE 148billion in 2011, and the number of transactionsurged to 6 million transactions compared to5.6 million transactions in 2011. The marketcapitalization for the listed companies on themain market has also increased to reach LE 376billion at the end of 2012 up from LE 294 billionthe previous year.EGX has witnessed a relatively high tradingrecords in 2012 compared to 2011, registeringa trading value of LE 185 billion as opposed toLE 148 billion last year. Moreover, the volumetraded soared to reach 34 billion securities in2012 compared to 18.5 billion securities in 2011.Likewise, the number of transactions recorded6 million transactions versus 5.6 milliontransactions in 2011.The value traded of the main market amountedto LE 166.5 billion in 2012 compared to LE 131billion in 2011.On the other hand, Over the Counter (OTC)market registered a trading value of LE 18 billionduring the year compared to LE 17.5 billionin 2011. Meanwhile, the OTC trading volumeretreated to 1.4 billion securities in 2012, downfrom 1.6 billion securities last year.From another perspective, Nilex market tradingfigures surged in 2012 compared to the yearbefore, recording a trading value of LE 247million compared to LE 191 million in 2011while the trading volume amounted to 81 millionsecurities in 2012 as opposed to 31 millionsecurities last year.The market capitalization of the main marketlisted stocks witnessed a 28% increase in2012, concluding the year at LE 376 billion asopposed to LE 294 billion at the end of 2011,representing 24% of GDP.The Egyptian market started the year on apositive note, following the parliamentaryelections and the transfer of legislative powerto the parliament. The market continued itsgood performance till the end of February &took off remarkably during the month of March.The market, however, pulled down affected bythe political unrest related to the constitutionalcommittee & the preparation for the presidentialelection. This lackluster performance lasted tillthe end of the Presidential election’s secondround.With the beginning of the 2nd half of the year,the market showed a good performance tillthe month of November, during which politicaltensions took place, which affected the marketnegatively till the beginning of December. Themarket, however, rebounded again on theback of the finalization of the constitutionalreferendum, which pushed the market up tocontinue rising till the end of the year despitebeing disturbed by the credit rating downgrade.The dividend yield for the Egyptian Exchangehas reached 8.3% versus 2.6% for the emergingmarkets and 3.2% for the Africa and Middle East(according to Standard and Poor’s). This growthis mainly attributed to the investors’ positiveoutlook for the Egyptian market. Despite thecritical conditions experienced by the Egyptianeconomy, yet the companies’ profitability is stillthe highest among all emerging markets.Given more economic and political stability, theEgyptian Exchange is expected to show a betterperformance and realize higher growth rates inthe coming period.Key Information ContactsMinistry of Finance www.mof.gov.egMinistry of Investment www.investment.gov.egCentral Bank of Egypt www.cbe.org.egEgyptian Financial Supervisory Authority www.efsa.gov.egMisr for Clearing, Depository and Central Registry www.mcsd.com.egSMEs Market (NILEX) www.nilex.egyptse.comCONTACT INFORMATIONContact Name Mr. Mohamed Farrag E-mail mahmed.farrag@egx.com.eg Website www.egx.com.egPAGE 41
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