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EUPHORIA ALL OVER The Egyptian market continued in full steam for the second period in a row with double-digit percentage increase during the period February 15 to March 15. The broad-based HFI Index and the broader CIBC Index shot up 22 percent and 18.7 percent, to 38706.82 – a lifetime high – and 160.40, respectively. So far this year, the two indices are up 62 percent and 52 percent. Still, no one sector took the lead in the market; hence, stock pickers might have done just as well by throwing darts on the stock listings in a newspaper. By now, investors are wary of a market that might have gone too high too fast, yet many do not want to lose out on further quick gains. March 15 marked a new market peak. (The market subsequently retreated on March 16 and 17 amid profit-taking, mainly by retail investors, and concerns that this could initiate a downward spiral effect.) Is the market out of steam or is it just catching its breath before the next round of euphoria? Analytically speaking, if new funds are flowing in, company profits are witnessing healthy growth rates and the macroeconomic picture is not dented in any way, there is no reason why the market should reverse the trend except for short-lived, profit-taking waves holding up the market for a few days. Nevertheless, at such high prices stock picking is probably the most appropriate tool nowadays. Relating stock prices back to fundamentals will help investors self-regulate their craving for quick profit makers that may well turn into quick money drainers. In short, investors should consider risk-adjusted returns more seriously. This period proved to be another wave of market gyration for certain stocks that lagged behind the market in the previous periods. Long-forgotten names include OPTD, OHH, ASEC Cement (formerly Helwan Cement) and Al-Ezz Ceramics & Porcelain just to name a few. Milling stocks were also back in the spotlight this month as milling companies released their first-half financial results. Shares continued to head higher with interest in this sector at a more-than-three-year peak. All seven companies advanced with an average return of 32 percent. It is worth noting that following profit-taking activities, stock prices of these milling companies dipped as investors started taking some money off the table. Two other stocks that glowed in green were EFG-Hermes and Oriental Weavers. The former saw its stock price increase 62 percent to £E 28.61, probably due to investors’ expectation of higher earnings with such high daily trading turnover. Indeed, the market is averaging now half a billion Egyptian pounds a day in traded value, the highest the stock market has ever witnessed. In addition to higher trading volumes, the fact that stock prices are increasing lends to higher trading turnover as well. An example is Oriental Weavers, which saw its stock price ramp up from £E 75.43 to £E 114.95 – a 52-percent increase. The company had posted its 2004 financial results showing a 12-percent increase in profits to £E 194 million versus £E 173 million a year ago. At the end of the day, investors should keep in mind that what goes up must come down. When it comes down, the question becomes, how far down? It is too early to presume a reverse in the market’s upward trend, at least from a trading point of view. Fundamentally speaking, some stocks may be fairly valued or overvalued, while others may still have room to grow. Drawing the line then becomes how these companies’ expected profitability – at least in 2005 – will cope with such high stock prices. Relative valuation then can lend investors a helping hand in relating all companies stocks back to fundamentals.
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