“If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.” ― George Bernard Shaw

We like to measure volatility in the market by calculating the daily range of EGX 30, the market gauge. The charts to the right show how volatility started to pick up on 1 March 2020, when the daily range hit 3.20% versus a daily average of 0.50% throughout January-February 2020. The data show that such high volatility readings often coincide with negative daily performance for the EGX 30. At the start of the year 2020 (on 5 January to be exact), we witnessed a drop of 4.40% on the EGX 30 with the daily range hitting an abnormally high 2.30%.

Volatility harming the stock market: The average daily range of EGX 30 so far in March 2020 is 2.22%, still high by historical standards, which is not good for the Egyptian stock market. Volatility reflects market jitters across global markets in general, not only in Egypt. Even the US markets began to behave like emerging markets. Obviously, investors around the globe are moving out of risk assets after turning into a “risk off” mode, shrugging off equities as an asset class, regardless of where they are domiciled. Even US Treasuries, which have been bid higher early March, pushing 10-year yield to as low as 0.3% on 9 March 2020, are being sold off nowadays (yielding 1.2%). We expect the slowdown in the spread of the pandemic coronavirus (COVID-19) will turn the markets meltdown into a U-shaped recovery, but the emergence of a cure will result in a V-shaped recovery.

Black March pushing EGX stocks to hysterical valuation levels: Back to Egypt, the market has been on a downward spiral with the EGX 30 hemorrhaging one-third of its value in March alone! So far, March 2020 is competing with October 2008 as the worst month for the EGX 30 which had lost 33.2% in October 2008. We ran some screens on the following pages, where we show that:

(1) At current prices, the EGX 30 is close to pre-EGP flotation levels in EGP terms with 16 (out of 30) stocks down an average 40% since 2 November 2016. However, in USD terms, the EGX 30 is down 43% with 22 (out of 30) stocks down an average 55%.

(2) At current market prices, there are five stocks with market caps below their net cash balances and 16 stocks with net cash representing 50% or more of their market caps.

(3) There are 78 stocks trading below book values. —Updating our macro forecasts and sector views: In this note, we update our macro indicators forecasts and sector views.