Host: Egypt's stock market is up nearly 26% this year, with trading volumes running well above average, and this sounds like a foreign investor magnet, right? Except it isn't, because in the latest session, local investors were the only net buyers. Last week, the government tightened rules on sending money offshore after a record run of outflows. So is this a sign of a homegrown investor base finally coming of age, or a market perhaps quietly turning inward just as Cairo tries to sell stakes in companies like Masr Life and Banque Dea? Well, here to make sense of it all is economist and capital markets veteran Dr. Romer Hamed. Pleasure to have you with us.
Host: Dr. Hamed, first of all, the EGX, as we said, is up almost 26% this year, but the latest data shows local investors as the sole net buyers. When a rally runs on domestic money alone, is that a sign of strength or perhaps a warning sign?
Dr. Hamed: Well, it's both together to answer you. From a domestic standpoint, yes, it is positive because it shows that the domestic market has a trust in the equities market in general. But let's, I mean, to analyze this a little bit deeper, we have to see what the other options are. The other options are deposits, banks, real estate market, or gold. As you know by now, the real estate market has been sort of saturated. Saturated is not the right expression. It's more controlled by a number of developers, if you want. So now it looks like an oligopoly market. And this, as you know, is not a very good sign for real estate, and that's why people are trying to find other ways out if you want.
Dr. Hamed: The banks to put your deposits in are now become the credibility of the domestic banks in Egypt does not compare to before, mainly because there is a practice of freezing accounts without recourse to the courts. And that's a big question mark. Gold, as you know, has its ups and downs, so the equities market is now more or less attractive to the domestic retail consumer.
Host: Another very important point we just mentioned. Last week Egypt brought in fresh restrictions on offshore investing after record outflows. In your opinion, does that protect the pound and the market in the short term, or does it scare off exactly the foreign capital Egypt says it wants?
Dr. Hamed: Frankly speaking, this action, I wouldn't really take it that seriously from the government because it can change tomorrow or next week. The idea is that foreign investors are always looking for deeper liquidity, of course, better pricing, longer-term horizons, and avoiding volatility. So the question now is, are we after liquidity-driven markets or fundamental-driven markets? If liquidity-driven, then you rely on the domestic market. However, foreign investors—global investors—look for what we can call fundamental-driven equity markets.
Dr. Hamed: To answer your question deeper, the restrictions have some positive aspects, but only in the short run. In the long run, it’s different. In the short run, they sort of give a little bit of backing to the foreign exchange market for sure and then also control somewhat the capital inflow, but this is only in the short term.
Host: Some experts today believe that there’s a real risk Egypt's market accessibility can get questioned by global index providers. How worried should we be that moves like this cost Egypt its emerging market standing? And why does that classification matter for ordinary investors?
Dr. Hamed: Of course, it matters for any country, any emerging market, not only Egypt, which is still classified as an emerging market. This classification is crucial because the accessible agencies such as the MSCI or the FTSE not only look at the company's performance but also at other things such as market accessibility, foreign exchange convertibility, the efficiency of the companies, investor protection for sure, and capital mobility. Yes, there is here a little bit of a risk in the short run, but if you strengthen and take care of all these aspects, then you might be able to attract foreign investments.
Host: There's a specific question here. You know, the government wants to sell a stake in Masr Life within weeks, with Banque Dea to follow. If foreigners are on the sidelines right now, who’s left to buy these IPOs at the price the state is hoping for?
Dr. Hamed: You have only domestic institutions now such as pension funds, big Egyptian banks like the National Bank of Egypt, and insurance companies—other insurance companies, of course, local asset managers, and high net worth individuals. There is also a retail investor appetite to explore the domestic stock exchange in Egypt, but for global investors, it's a bit different. Global investment, representing fresh capital, looks for long-term ownership and international valuation.
Host: Thank you very much, Dr. Hamed. It's a pleasure having you on Capital Markets today.
Dr. Hamed: Thank you.
