Capital markets worldwide still reeling from effects of 2008 crisis: CFA head

Increased listing of government companies in EGX and introduction of new kinds of investment funds contributed to the development of Egypt's capital market, says Paul Smith

On the sidelines of the annual conference held by Chartered Financial Analysts (CFA), Chairman Paul Smith told Daily News Egypt that the process of turning emerging markets into developed markets is offset by numerous challenges.
These include the volume of economy and stock exchanges, the rates of free trading, and the size of market's trade with individuals and institutions, in addition to the economic growth.
The openness of emerging markets to international business is considered one of the most important factors determining their shift to developed markets. However, the process of opening up the market to international investors is often long-winded, and requires the introduction of several investment policies regulating the economy, Smith said.
He further commented on the ability to attract liquidity and clients to the stock exchange, noting that both are dependent on a set of sound monetary policies in the market, along with a suitable investment climate and policies guaranteeing an independent open economy.
Smith said there is a need to develop institutions working in the market and increase investment funds, especially insurance and pension funds, to create a demand on shares. This will eventually increase the quality of the market and accelerate its development.
He highlighted the importance of looking for ways to increase awareness of financial investments through education and school curricula, especially as traders' visions are often limited to investing to maintain liquidity or cover the cost of purchasing assets.
In terms of the feasibility of activating new financial instruments in the Egyptian market, Smith said it is essential to create demand on them, as their mere presence does not add to the market's quality. Thereby, a demand is necessary before the actual activation of these instruments.
"What is happening in the world right now is not a new financial crisis, since we have not recovered from the crisis of 2007-2008," Smith said. "I expect this phase to last for a few years due to many factors, including regulatory restrictions in Europe and the US."
Western traders have lost confidence in capital markets, which is one of the many challenges hindering the recovery of markets. Smith said the world is dealing with the slow growth of the Chinese economy, which created a negative economic environment worldwide.
He further pointed to the Middle Eastern markets, which are characterised by the decline in oil prices and their impact on Gulf countries and financial centres. This, along with the crises facing the global economy, have made the current phase difficult for the markets in the Middle East.
The Egyptian market is characterised the small number of registered securities companies, compared to the number of economic entities available in the Egyptian market, in addition to the delisting of some companies being from the stock exchange.
Smith highlighted the necessity of the Egyptian government supporting capital market by increasing the capital of public sector companies on the Egyptian Exchange (EGX). The government's support is important and should not be limited to benefiting from the financing role of exchange market, but should rather extend to promoting the stock exchange as a means for increasing capital, he noted.
"The Egyptian government has to adopt the procedures and policies required to convert the Egyptian economy into a free liberal and independent economy," he said.
Small and medium-sized enterprises (SMEs) push the world growth by providing jobs and increasing the gross domestic product (GDP) and economic growth rates, he said, noting that the SMEs develop over time to become large entities, which can use stock markets to increase their capitals.
The Egyptian market currently needs to restore the confidence of investors in it and fully recover to improve its future prospects of attracting foreign investment. Countries that have benefitted from the decline in oil prices have not made use of these savings yet because they had not been invested or used to buy consumer products. However those savings are kept in anticipation of a rise in oil prices.
The current period is suitable for investing in emerging markets, following the recent declines witnessed in them. These declines, along with the slow growth and high prices that characterised the global economic crisis, have created investment opportunities in emerging markets.
Smith revealed that CFA will not provide a divided curriculum in Egypt because the available financial tools are limited and cannot cover different specialisations. There are 200 professional financial analysts who hold the CFA certificate, in addition to 600 who are studying to receive it.
Smith further announced the launch of the annual competition for research challenge in Egypt, organised by the CFA Society for the fifth consecutive time. The competition aims to select the best research report from among nine participating universities. The competition is searching for the best financial assessment report — fundamental analysis – that determines the fair value of Arabian Cement Company's (ARCC) shares.
The CFA Institute is a global institution operating in the field of investment, along with the World Association of Investment Professionals. The institute is run by financial analysis programmes with certificates of Investment Performance Measurement (CIPM).
CFA also holds the annual "Analysis Challenge" competition for companies operating in the stock exchange. It aims to develop research and analysis skills among students and provides the suitable professional environment to assess companies and write a professional financial report about them.
More than 650 universities participate in the competition yearly, represented by 3,000 students from 55 countries.