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RIDING OUT THE STORM
The stock market’s sudden dip last month has
left investors in a cold sweat. For many, including the hordes of
amateur investors that joined the Telecom Egypt IPO bandwagon, it
was their first time to see the market take an unexpected trip south.
Within the first few hours, it became clear who should and shouldn’t
be on the market.
As news spread of the market’s abrupt decline, panicked newbies
rushed to their brokers to liquidate their positions, taking substantial
losses in the process. Meanwhile, veteran investors went “bottom
fishing” – picking up these dumped stocks at low prices
well aware that they would recover their value over the long term,
if not sooner.
There’s no arguing that a correction has taken place. The CASE
30 shed 16 percent on March 14 before bottoming out. It has since
bounced back and the market continues to chart a bullish path. In
fact, there’s no real reason it shouldn’t. Inflationary
pressure is low, P/E ratios are good and companies are reporting
healthy earnings.
It’s important to remember that corrections tend to be cyclical,
and are a natural part of the capital market. This one taught us
several things. For one, it showed that Egypt’s stock market
is not immune to the periodic downturns that afflict other regional
and global markets – a fact oft forgotten during its two-year
bull run. Moreover, events in distant markets can have repercussions
on the Egyptian bourse – causing the market to falter abruptly
for no apparent reason.
It has also demonstrated that Egyptian retail investors are a reckless,
flighty lot – ready to plug their life savings into stocks
when the market’s on a roll, yet abandon ship the minute it
gets too rough. Investors need to be aware that the stock market
is, by nature, a risky venture and if they’re not prepared
to lose the money they invest they shouldn’t be in it. Better
they stick to bank accounts.
Lastly, the correction was the market’s first real test. Clearly,
it passed. That Gulf investors came looking to Egypt when they couldn’t
sell their equities back home shows the CASE has liquidity, while
the market’s rebound following the correction indicates investors
still have confidence in its underlying values.
CAM MCGRATH
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