The downhill performance of Egyptian Exchange (EGX) since the beginning of the year has drawn concerns from market experts, investors and trading individuals. Daily News Egypt interviewed EGX Chairman Mohamed Omran and discussed the future of the capital market this year.
During the interview, Omran highlighted that the EGX is affected by current economic circumstances, saying that purchasing in the capital market relies on forecasts. If the forecasts are unclear with a high risk rate and unpromising growth, then purchasing behaviour will be negatively influenced.
Will there be an introduction of new financial instruments in the EGX to compete with other capital markets?
We have all financial instruments in the EGX, except for derivatives. All legislations and regulations of the EGX allow for the existence of all financial instruments. This is where the role of the EGX stops. We cannot issue a financial instrument such as Sukuk, Exchange Traded Funds (ETFs) and revenue bonds. What is needed is an entity willing to offer this instrument in the stock market.
What is also remaining is the level of attractiveness of your economy and the purchasing power [of investors]. If you issue an instrument here [in EGX] and issue it in the United States’ stock market, [it will not be as attractive].
I am a firm believer that the market can correct itself by itself. When the economic environment is stable worldwide and as a country, you have attractive regulations and legislations, you [the EGX] can play an important role.
It is vital that we improve our position in the World Bank’s Doing Business report. Last year and the year before that, the only indicators that improved in the report were those connected to the capital market. Our level of disclosure is higher than the OECD [Organisation for Economic Co-operation and Development] average.
Nasdaq Dubai, cooperating with Misr for Central Clearing, Depository and Registry (MCDR), recently launched a new ‘share link’ to facilitate trading for Egyptian investors. With such developments, how will the EGX be able to compete against Gulf capital markets?
Our market is open and Arabs can trade freely. It is attractive as we have diversity in the sectors and no limitation on ownership and, prior to the recent dollar shortage, there is freedom in market entry and exit.
How would you evaluate the performance of the exchange-traded funds (ETFs)?
The ETFs, unfortunately, were created in difficult [economic] circumstances, such as liquidity shortage and new [capital gains] taxes, as well as a declining global economy. It is unfair to judge its performance in light of those circumstances and slow growth rates.
Over the past year, 15 companies were listed in the market and five companies had an IPO. What are the expectations for IPOs in 2016?
When companies are ready and have made their decisions, they will choose to have an IPO, but it is not the EGX’s decision.
CI Capital announced that they plan to have an IPO for three companies this year. Has there been any ongoing communication between EGX and CI capital?
No one talks to me [EGX] unless they are ready and have a proposal to list a company.
Has the government approached the stock market with regards to having an IPO for the four petroleum companies?
We previously sat down and talked. As soon as an IPO approaches, I will announce it.
What are your views on the 12.5% interest rate offered by banks, which many believe to have resulted in investors opting to invest in them instead of the capital market?
This is an investment decision that I have no say in. The interest rate offered is not the only alternative. Some prefer to invest in land, and others purchase properties. All of these alternatives have a return rate that can compete with the securities.
What is the EGX’s plan to improve the market in 2016?
This year’s plan is part of four-year plan. Each year, we evaluate the progress we made. We made major progress in the amendments of regulations and legislations during 2014 and 2015. We are currently working with the Egyptian Financial Supervisory Authority (EFSA) to revise the indicators of Doing Business report. We are looking at the indicators in which we have lower rates and are targeting to improve our position in them. We are even looking into improving the indicators that have high rates. Improving those rates will better our position and this will reflect well on us in the report.
We will break down the indicators and look at what we can change as a capital market, weather EFSA or EGX or both, and amend them in order to improve the capital market’s working environment.
Do you have specific targets?
No, we are going to review what we can change with regards to our regulations; I cannot change the tardiness of a delayed company document in another authority.
Do you have any other plans?
Before the end of the first quarter in 2016, we will move the date centre from Downtown Cairo to the EGX in Smart Village. The EGX museum [the old branch of EGX] will be practically finished this month. However, we are two months behind schedule and the launch date has yet to be decided. The museum will display the history of 130 years of the Egyptian stock market.
What does the future hold for shares on commodities?
I prefer that the derivatives stocks fall under the umbrella of the EGX. After introducing the derivatives, then maybe we can create derivatives for commodities. I cannot speak for the minister of supply because he is the one who would have the plan for that, whether he wants the introduction of commodities to be a future market or stock market.
My targets are delayed because you cannot discuss derivatives within such circumstances. Even if we talk to their stock market to form alliances, you would find that there is no enthusiasm. In 2007, the volume of trade was high and the economy was growing significantly. We need to be smart about the timing. Introducing derivatives would only be a good idea if you have high volumes of trade.