By Ramy Sameeh:
Cairo-Mubasher: Capital market analysts and experts said Egypt’s stock market will benefit from the drop of the local currency against the U.S. dollar.
Such fall in EGP leads to a drop in the value of stocks, which makes them more attractive for foreign and Arab investors, said the analysts.
Egypt's pound continued its depreciation against the U.S. dollar on Thursday for the fifth straight day, reaching EGP 7.39, thus hitting its lowest level since introducing the foreign currency auctions in December, 2012.
Bank sources told Mubasher that the local currency lost around 3.5% of its value against the dollar over the last five days, after the central bank let the currency depreciate from 7.14 for the first time in six months.
The Central Bank of Egypt (CBE) said, on its official website, it sold $38.4 million in a foreign currency auction held Thursday, at a cut-off price of 7.39 pounds per dollar, compared with 7.34 on Wednesday and 7.29 on Tuesday. It had offered $40 million.
Meanwhile, the Egyptian Exchange (EGX) indices ended on a mixed note on Thursday, while most leading stocks rallied backed by the continued slump in the Egyptian pound’s exchange rate against the U.S. dollar.
Egypt’s stock market benefitted extensively from the fall in local currency, as it was propelled towards levels not reached since the global financial crisis, said Ehab Said, head of technical research, Osool Securities Brokerage.
“The drop in the value of the local currency makes listed shares more attractive for foreign investment,” said the analyst.
In its meeting held on January 15, 2015, the CBE’s Monetary Policy Committee (MPC) decided to cut the overnight deposit rate, overnight lending rate and the rate of the CBE’s main operation by 50 basis points to 8.75%, 9.75% and 9.25% respectively. The discount rate was also cut by 50 basis points to 9.25%.
Commenting on fears about possible inflationary pressures due to the EGP drop, the analyst said such fears do exist but not at such an exaggerated level.
Said added that he expects inflationary rises to be temporary, especially amid recovery in Egypt’s economy.
International credit ratings agency Moody's in October upgraded Egypt's outlook to stable from negative, thus making the country's struggling economy more hospitable to international investors.
Moody's decision was based on improved political stability, fiscal consolidation and signs of growth recovery, but limited by high fiscal deficits and government debt levels.
The ratings agency also affirmed Egypt's government bond rating at Caa1.
Fitch Ratings raised in late December Egypt’s long-term foreign-currency debt rating to ‘B’, five steps below investment grade, from B-. The agency also maintained its Stable Outlook for the Egyptian economy.
Moustafa Namera, technical advisor, Tycoon Brokerage, said the continued fall in the local currency may frighten dealers from keeping cash and prompt them to exchange the EGP with the dollar, real estate, commodities, gold or equities.
Translated by Sayed Abdel Rahman
Photo Credit: Arabianeye-Reuters
