Egypt creates fund to boost stock exchange liquidity

The fund will finance brokerage companies to attract new investors

Egypt’s blue-chip index rebounded 2.2 per cent on Wednesday, following seven sessions of losses. Reuters

Egypt’s Financial Regulatory Authority and the country’s central bank agreed to establish a fund to increase liquidity in the Egyptian stock exchange and attract more investors to the Arab world’s most populous country.

The fund will finance brokerage companies to encourage new investors, in addition to "increasing the solvency and financial capacity of current investors", according to a statement by FRA on Wednesday.

The regulator did not disclose the size of the proposed fund or when it will begin operations.

Egypt’s blue-chip index rebounded 2.2 per cent on Wednesday, following seven sessions of losses.

The exchange has suffered from heavy trading by individual investors in recent weeks, with Egypt’s index losing over 7 per cent this month alone. The country’s stock exchange suspended trading for half an hour on Tuesday after its EGX100 index fell by 5 per cent in the morning trading session.

“Volumes have fallen in recent weeks from levels in late 2020, and the sell-off has been exacerbated by margin calls,” said Simon Kitchen, head of macro-strategy at EFG Hermes Research.

Egypt’s central bank has taken several measures including cutting interest rates in September and November, deferring customers’ credit dues and introducing a mortgage finance initiative to offset the economic impact of the pandemic.

FRA chairman Mohamed Omran said the central bank is working to create an investment climate and revitalise the stock exchange to further support the market and attract investments.

He also said there is an increasing interest in the role of the market to support the economic development plans of the country.

“We saw last year that heavy institutional buying can support the Egyptian market at times of stress,” Mr Kitchen said. “However, this fund will not itself be an investor, but will provide liquidity to brokers – its market impact may be quite different.”

He said in general “lower local interest rates and new listings are the best ways that the market can attract fresh capital and improve liquidity”.