Egypt index tumbles after surprise rate hike, Qatar outperforms in quiet Gulf

Egypt's stock market tumbled in heavy trade on Monday after the central bank unexpectedly raised key interest rates overnight, while Qatar outperformed in an otherwise quiet Gulf. Cairo's blue-chip index dropped 2.5 percent after the central bank hiked its overnight deposit rate and overnight lending rate by two percentage points - its first increase since a hike of three percentage points in November.
The motive for the hike was to combat Cairo's hyperinflation and it came at the recommendation of the International Monetary Fund. But the equity market was not prepared for such a move. "While we expect a market-wide correction as an immediate reaction to the increased opportunity cost of capital, the impact should be felt more on companies that are excessively leveraged," said Cairo's Naeem brokerage.
Some fund managers said the hike was unlikely to hurt growth much, given the loose links between interest rates and consumer behaviour in Egypt. "We believe credit penetration and transmission mechanisms are not deep enough in Egypt for this rate move to have a meaningful impact on growth. We see today's pull back in the EGX as a buying opportunity," said Mohamed el-Jamal, managing director of capital markets at Abu Dhabi's Waha Capital.
Salah Shamma, head of investment for regional equity at Franklin Templeton Investments, said: "Equity markets are expected to initially react negatively as retail investors react. "However, inflation expectations continue to be relatively unchanged and shouldn't affect the market's long-term risk or growth profile. As such, it is more likely the drop in the equity market will be short-lived."
Real estate shares were the hardest hit on Monday. Palm Hills Development Company lost 8.4 percent. Private equity company Qalaa Holding slumped 9.6 percent after it reported a much wider net loss in the latest quarter of 3.4 billion Egyptian pounds ($188 million), blaming it mainly on the float of the local currency in November.
The broader EGX 100 index fell 1.8 percent. Qatar's index added 0.8 percent with the main support coming from blue chips that are constituents of the MSCI emerging market index. Islamic lender Masraf Al Rayan added 1.6 percent. The Saudi Arabian index closed almost flat after it had gained 0.8 percent on Sunday following news that Saudi and US companies had signed over $200 billion of deals during President Donald Trump's visit to the kingdom.
Declining shares outnumbered advancing ones 94 to 49 with material makers and other industrial companies slightly underperforming. Polypropylene producer National Industrialization Company fell 1.0 percent. In the United Arab Emirates, Abu Dhabi's index fell 0.4 percent while Dubai's index edged up 0.1 percent on the back of Gulf Navigation, which jumped 5.6 percent. Its shares have been surging since Thursday, partly because it posted strong first-quarter earnings on Sunday. One trader told Reuters that a strategic investor might be increasing its stake in the company.