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A 4 Pages Term Paper on The Capital Markets of Middle East - Egypt

Introduction

     The emerging markets of Middle East that achieves high and sustainable rates of economic growth, and attracts foreign investment, upgrade their capital markets to foster and fuel this growth. The last collapse of several economies along with the collapse of their stock exchanges around the world indicates the inevitable link between a country’s economic performance and the vitality of its capital markets.

The Egypt Stock Exchange

     Egypt has learned the lesson from these economies and has been embarking over the past five years on developing a state-of-the-art stock exchange that has an international and regional focus to support Egypt’s economic reform plan.
In the quest to upgrade its stock exchange, Egypt has taken major steps towards improving the rules of disclosure, enhancing the regulatory environment, and the proper dissemination of information.

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The Capital Market Law of Egypt

     A new “Capital Market Law” has been ratified by the parliament in 2001. This new law aims at providing greater investor protection, in addition to establishing a code of conduct for the operations of portfolio managers and brokers. In order to ensure more efficient and timely clearing, settlement and depository facilities, a new “Settlement and Depository Act” has also been developed. A positive step towards the enhancement of safety and protection measures is the establishment of a loss guarantee fund, hedging against alpractices and cases of default

Cairo & Alexandria Stock Exchange (CASE)

     The Cairo & Alexandria Stock Exchanges (CASE) is continuously upgrading its trading system to accelerate processing and increase the volume of transactions, along with the regulatory developments. EFA of Canada is currently developing a new trading, clearing and settlement system that are capable of handling 100,000 transactions per day. CASE has also formed an international advisory committee that comprises of investment bankers, financiers, economists, and investors from internationally renowned institutions to provide feedback on CASE’s policies. These committee members shall also identify the obstacles perceived by international investors in the Egyptian economy.

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Egypt’s Capital Market Performance

     The performance of Egypt’s stock exchange did not meet expectations in 2000. Low valuations prevailed during the year, along with low private investment. However, experts from most sectors view this as a natural short-term effect resulting from shortages of liquidity that began during the second half of 1999, and also due to the subsequent measures of the government to address the scarcity of foreign exchange.

     Despite this downturn, a closer look at market indicators reveals the significant potential of the Egyptian capital market, compared to other regional (Middle East) emerging markets. As of June 2000, the number of listed companies increased to 1,036. They represented a diversity of economic sectors, with a total market capitalization of LE 119.74 billion, compared to 960 companies with a market capitalization of LE 93.68 billion in June 1999.

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The Secondary Fixed-Income Market of Egypt

(Bonds, Futures and Securities)

     In order to improve the depth and diversity of the securities market, developing the secondary fixed-income market has also been a key priority. The current Egyptian bond market amounts to approximately LE 15 billion. In addition to government treasury bills and development bonds, this market has 29 corporate bond issues, 19 housing bonds, and 7 Treasury bond issues. Adding to this, 8 Egyptian companies have listed their shares as Global Depository Receipts (GDRs) on the London Stock Exchange.
Capital market analysts see great potential in mutual funds and fund management companies to take a proactive role in the mobilization of funds and utilization of savings.

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Data Tables

Primary Market

 

Unit

Jan.-Dec. 2000

Jan.-Dec. 2001

Change

Total issued value of shares (100%)

Billion L.E.

38.01

15.71

-58.70%

% (of total value) of share issue at incorporation

%

35.33

37.52

2.18

% (of total value) of share issue at capital increase

%

64.67

62.48

-2.18

         

Secondary Market

 

Unit

Nov. 2001

Dec. 2001

Change

General stock market index

Points

605.42

613

7.58

Value of traded securities (registered and non-registered securities)

Million L.E.

2227.3

3680.2

65.20%

Million $

73.9

17.1

-76.90%

 



Sector Highlights

(Egypt in the International Capital Market)

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  • The Egyptian stock exchange stands in the second rank in market size among African and Middle Eastern exchanges (June 2000)
  • A new computerized trading system is up and running since mid 2001, capable of handling 100,000 transactions per day.
  • Recently, Egypt is included in the MSCI index by virtue of the diversity of investment opportunities and unrestricted foreign access.
  • Foreign investors’ trading totaled LE 10.7 billion, representing around 20 per cent of the total trade (June 2000).

Egypt is now internationally recognized as an undervalued emerging market with a promising potential, thus adding to the essential prerequisites for the development of the capital market.

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Works Cited

The Capital Market Authority of Egypt (CMA)
http://www.cma.gov.eg/

State Information Services – Egypt (SIS)
http://www.sis.gov.eg/

The Egyptian Presidency
http://www.presidency.gov.eg/

American Chamber of Commerce in Egypt (ACCE)
http://www.amcham.org.eg/

 
 


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