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Evolution of Egypt's Capital Markets: Historical Insights and Current Challenges

Egypt's capital markets, with their historical roots dating back to the establishment of the Alexandria exchange in 1883 and the Cairo exchange in 1903, have undergone significant shifts. Post World War II, the markets faced challenges due to central planning and nationalization. The 1990s marked a turning point, initiating reforms that revitalized the sector. Despite recent developments like automated trading and a robust stock market, issues such as market fragility, concentration of ownership, and an underdeveloped bond market persist. Addressing these challenges is crucial for sustainable growth.

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Evolution of Egypt's Capital Markets: Historical Insights and Current Challenges

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  1. Capital Markets in Egypt Some personal thoughts: Yosuke KAWAKAMI, DAF

  2. History & infra: Relatively Old & Well-developed • CASE: Among oldest exchanges in region - Alexandria: established 1883, Cairo: 1903 - ranked 5th in the world in1940s • However, capital markets languished post WW2 - central planning and nationalization during 1950’s -60’s • CMA: established in late 1970’s • 1991: Start of economic reforms • 1992: Capital Market Law • 1994: Start of privatization

  3. Recent Macro & Structural Reforms have led to Capital Market Development • Macroeconomic Stabilization & Improved Performance - Transition to unified flexible FX rate regime (Dec.2004) -- subsequent stabilization - strengthened external position • Structural Reforms - Privatization - Financial Market Reform -- Recent capital market reforms: e.g. automated trading, primary dealership, “One-stop Shop”

  4. Stock Market: 2nd in size among MENA • CASE index: 3-fold rise from end-2004 to early-2006 • Market value: 70% of GDP (as of Sept. 2005) --- doubled in two years • However, market fragile: 16% drop on 14 March 2006 • Have withstood recent MENA downturns better

  5. Some Outstanding/Remaining Issues (1) • Bond market: less developed • Stock Market Structure - concentration of capitalization & trading -- largest 10-20 firms dominate - concentration of ownership / low free float

  6. Some Outstanding/Remaining Issues (2) • Institutional Issues - Corporate governance -- development of CG Code & Guidelines for CG of SOEs -- establishment of Institute of Directors - Strengthening insider-trading rules - Derivative instruments: provide hedging tools & help increase liquidity -- general principles of law provide legal basis (although no specific legal framework exist under Egyptian law)

  7. Some Outstanding/Remaining Issues (3) • Capital Market Promotion & Development - Promoting privatized share sales to general public - Promoting development of institutional investors -- further reform of insurance & pension sectors useful - MBS (ABS) development -- conversion of mortgages (which the gov't is promoting)

  8. Thank you!

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