The Egyptian Stock Exchange is under pressure from regional tensions and declining liquidity

The Egyptian Stock Exchange ended trading on Sunday in a collective decline, with Egyptian and Arab investors tending to sell in exchange for purchases from foreigners, as market capitalization lost about 96 billion pounds ($1.86 billion), closing at 4.14 trillion pounds ($80 billion), while trading reached 7.8 billion pounds ($150.5 million). The main index, "EGX30", fell by 1.39% to 53,031 points, while the decline was more severe in the "EGX70" index, which fell by 3.87%, and "EGX100" also fell by 3.49%, in reflection of the widening scope of the selling wave to include large, medium and small-cap stocks.

This comes after a week of strong losses in the market, during which the market capitalization lost about 158 ​​billion pounds ($3.05 billion), in one of the most prominent recent waves of decline, while medium- and small-cap stocks recorded larger declines than the main index. Financial markets expert, Hanan Ramses, said that the market decline is linked to selling pressures from Egyptian, Arab and foreign institutions, in addition to the impact of investment decisions on geopolitical developments and global markets. She explained that Arab institutions are facing pressures related to regional tensions, while foreign institutions have been selling for some time, coinciding with the anticipation of the decisions of the US Federal Reserve and the repercussions they will have on the movement of funds between markets.

Ramses added in special statements to Ofek News in Arabic that the rise in US Treasury bond yields to high levels prompted some investment funds to direct liquidity towards fixed income instruments, which was reflected in money flows to stock markets. She also indicated that the periodic review of the FTSE indices (the main British stock market index), the results of which began trading on September 21, included changes in the weights of a number of stocks, in addition to the exit and promotion of some stocks, which affected the movements of institutions and redistributed liquidity within the market.

Ramses believes that the EGX70 index was the most under pressure, as it entered a continuous correction phase for about a month and a half, coinciding with the rise in margin trading rates. She explained that the decline in stock prices leads in some cases to requests to cover margin positions, or what is known as “margin call,” which prompts traders to sell other shares to provide the necessary liquidity to cover their positions.

She added that debt ratios exceeding legal limits may also lead to forced sales that exacerbate the decline. Ramses said that the market is not devoid of opportunities, but the lack of liquidity represents one of the most prominent challenges at the present time, explaining that some investors may be forced to liquidate their positions with losses in the hope of buying back at lower levels, but the continued decline may lead to a further decline in prices.

She pointed out that individual traders, especially new investors who entered the market through electronic trading applications, are among the groups most affected by fluctuations, pointing out that the use of stop-loss orders can add more selling pressure. Regarding the coming period, Ramses said that the end-of-month sessions may witness continued pressure as traders tend to settle margin positions and debts before the start of the new month, explaining that a decline in market capitalization to less than the level of 4 trillion pounds ($77.28 billion) remains possible if losses continue, noting that the main index had previously risen to levels of 56 thousand points before entering the current wave of decline.

She believes that the absence of incentives, business results, and new information makes technical analysis more influential in investors’ decisions, calling for monitoring the support levels for each stock and dealing with its breakage according to risk management strategies, explaining that stocks that witnessed strong declines can rise again if market conditions change and institutions return to buying and pumping liquidity, in light of the continuing current state of uncertainty. A member of the Board of Directors of the Egyptian Securities Federation, Mohamed Kamal, said that the escalating geopolitical tensions in the region, especially developments related to West Asia, Bab al-Mandab, and the Red Sea, have cast a shadow on the region’s markets, including the Egyptian Stock Exchange. He explained that some news and rumors related to regional developments have raised a state of fear among a segment of individual investors, coinciding with the market entering a correction phase after a long period of successive rises without effective profit-taking operations.

Kamal added in special statements to Ofek News in Arabic that the profit-taking operations that occurred during the previous rising wave were limited, while the recent declines became more severe, which reflects a change in the behavior of some investors, noting that the decline in trading volumes represents one of the most prominent developments worth monitoring, as it declined from levels that were around 15 billion pounds ($290 million) per session to about 12 billion pounds, and then to nearly 8 billion pounds ($155 million) in Sunday’s session. He explained that the market witnessed during the last period new inflows from local and foreign institutions and individual investors, but these inflows declined during the last week or two, coinciding with increasing selling pressures and a state of caution among investors.

Kamal said that the course of the market during the coming period will remain largely linked to developments in current events, explaining that the continuation of tensions and related news remains an influential factor in the movement of financial markets, adding that investors may find themselves in some periods following regional news and developments more than price movement, which increases the market’s sensitivity to any new developments. On the technical level, Kamal said that the level of 52,700 points represents an important support area for the main index, especially since the market’s consolidation at these levels may help in the occurrence of a rebound after the recent correction wave. Also, the general trend of the market is still bullish so far, and its main path has not changed. Also, the market’s ability to consolidate at support levels will be an important factor in determining its movements during the coming period.