The Egyptian Stock Exchange Under Pressure from Regional Tensions and Declining Liquidity

- The Egyptian stock exchange ended Sunday with a collective decline, as Egyptian and Arab investors moved towards selling against purchases from foreigners, with the market capitalization losing about 96 billion Egyptian pounds (1.86 billion dollars), closing at 4.14 trillion Egyptian pounds (80 billion dollars), while trading amounted to 7.8 billion Egyptian pounds (150.5 million dollars). The main index "EGX 30" fell by 1.39% to 53,031 points, while the decline was sharper in the "EGX 70" index, which dropped by 3.87%, and the "EGX 100" decreased by 3.49%, reflecting the widening scope of the selling wave to include large, medium, and small stocks.

This comes after a week of strong losses in the market, during which the market capitalization lost about 158 billion Egyptian pounds (3.05 billion dollars), in one of the most prominent recent downturns, while medium and small stocks recorded larger declines than the main index. Financial markets expert Hanan Ramsis stated that the market decline is linked to selling pressures from Egyptian, Arab, and foreign institutions, in addition to the impact of geopolitical developments and global markets on investment decisions, explaining that Arab institutions are facing pressures related to regional tensions, while foreign institutions have continued to sell for some time, coinciding with anticipation of the decisions of the U.S. Federal Reserve and their implications for the movement of funds between markets.

Ramsis added in exclusive statements to Afaq News in Arabic that the rise in U.S. Treasury yields to high levels has driven some investment funds to direct liquidity towards fixed-income instruments, which has reflected on the flow of funds into stock markets. She also pointed out that the periodic review of FTSE indices (the main British stock market index), which began trading according to its results since September 21, included changes in the weights of several stocks, in addition to the exit and promotion of some stocks, which affected institutional movements and redistributed liquidity within the market.

Ramsis believes that the "EGX 70" index has been the most pressured, as it has entered a continuous correction phase for about a month and a half, coinciding with rising margin trading rates. She explained that the decline in stock prices sometimes leads to margin call requests, which drives traders to sell other stocks to provide the necessary liquidity to cover their positions.

She added that exceeding the legal debt ratios could also lead to forced sales, exacerbating the downturn. Ramses stated that the market is not devoid of opportunities, but the lack of liquidity represents one of the most prominent challenges at the moment, explaining that some investors may be forced to liquidate their positions at a loss in hopes of repurchasing at lower levels, but the continued decline could lead to further price drops.

She pointed out that individual traders, especially new investors who entered the market through electronic trading applications, are among the most affected by volatility, noting that the use of stop-loss orders can add further selling pressure. Regarding the upcoming period, Ramses said that the end-of-month sessions may witness continued pressures as traders tend to settle margin positions and debts before the start of the new month, explaining that a decline in market capitalization to below 4 trillion pounds (77.28 billion dollars) remains possible if losses continue, indicating that the main index had previously risen to levels of 56,000 points before entering the current wave of decline.

She believes that the absence of catalysts, business results, and new information makes technical analysis more influential in investors' decisions, urging to monitor support levels for each stock and to deal with their breakage according to risk management strategies, explaining that stocks that have seen significant declines could rebound if market conditions change and institutions return to buying and injecting liquidity, amid the ongoing uncertainty. Mohamed Kamel, a board member of the Egyptian Securities Exchange, stated that the escalating geopolitical tensions in the region, particularly developments related to West Asia, Bab el-Mandeb, and the Red Sea, have cast a shadow over the region's markets, including the Egyptian stock exchange, explaining that some news and rumors related to regional developments have raised fears among a segment of individual investors, coinciding with the market entering a correction phase after a long period of consecutive rises without significant profit-taking.

Kamal added in exclusive statements to Afaq News in Arabic that the profit-taking operations that occurred during the previous upward wave were limited, while the recent declines have become more severe, reflecting a change in the behavior of some investors. He pointed out that the decline in trading volumes is one of the most notable developments worth monitoring, as it dropped from levels around 15 billion pounds (290 million dollars) per session to about 12 billion pounds, and then to nearly 8 billion pounds (155 million dollars) in the session on Sunday. He explained that the market has witnessed new inflows from local and foreign institutions and individual investors during the past period, but these inflows have decreased over the last week or two, coinciding with increased selling pressures and a cautious state among investors.

Kamal stated that the market's trajectory in the upcoming period will remain largely linked to the developments of ongoing events, clarifying that the continuation of tensions and related news remains an influential factor in the movement of financial markets. He added that investors may find themselves at times following regional news and developments more than price movements, which increases the market's sensitivity to any new developments. On the technical level, Kamal mentioned that the level of 52,700 points represents an important support area for the main index, especially since the market's stability at these levels may help trigger a rebound after the recent correction wave. Additionally, the overall trend of the market remains upward so far, and its main trajectory has not changed. The market's ability to maintain stability at support levels will also be an important factor in determining its movements in the upcoming period.