CASE: The Microcosm of Egyptian Society
The Egyptian stock exchange labeled CASE (Cairo and Alexandria Stock Exchange) is ‘unique’ to say the least. Over the last few years, Egyptians and Arabs have found the equity market a road to fast cash, prosperity and a way to satiate their materialistic desires. In a way, the stock market is ‘in’ among Egyptian contemporary society as well as Egypt’s youthful bourgeoisie. However, the recent 30% decline in the market’s volume (in one day) has shown the vulnerability, volatility as well as unreliability of third-world based trading.
Last year, the Economist reported that the Egyptian stock market performed better than other major markets around the world with a whopping 125% profit increase. In retrospect, this seems to be quite peculiar given the recent 30% daily crash.
Those who have the necessary capital have a number of methods which allow them to achieve large portfolio appreciations and quick cash. These methods have primarily revolved around ‘strategic’ investments in ‘key’ corporations.
The word ‘strategic’ should not be confused with the strategies Western investors implement in their respective equity markets. The uniqueness of equity trading on the CASE is that it is a microcosm of Egyptian society, a sine qua non of Egyptian social behavior and a representation of the clash between Western and Eastern ideals. The word ‘key’ is also important in this case because the Egyptian and Arab investors’ choices are made based on critical and pseudo-confidential information.
How is a stock market able to exemplify such sophisticated cultural nuances and Egyptian-society-embedded idiosyncrasies?
By nature, Egyptians like to gossip and spread rumors, conversations and report news. Common social arenas in Egypt include (but are not limited to): 1) shisha (argilah, nargilah, hookah etc.) cafes, 2) barber shops, 3) coiffure salons, 4) restaurants and (less likely) 5) bars. These places have become the perfect venues to eavesdrop on ‘vital’ and seemingly ‘critical’ information on whether to buy or sell stocks. In order to conceive of the consequence, one should imagine such a phenomenon on a city-wide scale; in this case Cairo and Alexandria.
Since there has been an upsurge of interest in investing in the stock market, Egyptians have found it convenient to spread gossip about companies’ earnings, performance as well as upcoming sell-offs, buy-outs etc. The interesting facet of this phenomenon is that it is gossip and rumor-like by nature. THUS, the information is NOT necessarily accurate nor is it guaranteed to make the parties involved wealthy whatsoever.
Also by nature, many Egyptians find interesting methods to beat the system. Beating the system should involve the least amount of effort, yet the highest return possible. Therefore the majority of cases involve unethical, illegal and corrupt ways of fooling the system to one’s advantage. This ranges from bribing police officers to trump any efforts of revoking one’s driver’s license to fabricating birth certificates to obtain certain perks (such as enrolling one’s child one academic year above what he/she should be at). As Egyptian society has become progressively more corrupt, bureaucratic and politically opaque, there has been a corresponding increase in peoples’ distorted perception of ethics.
This has become a cause of much concern. From a religious perspective, a large chunk of Egyptian Muslims have deviated away from what Islam labels as ethical, honest and proper. These can be certainly seen in the stock market.
The following hypothetical scenario should paint a clearer picture:
1) Individual A has 100,000 LE (approximately $15,000 USD) he would like to invest in the market. Individual A has no prior knowledge of the market nor does he have any specific information. Based on candid advice from a brokerage Individual A decides to invest all his/her money in company X.
2) One day, Individual A overhears two people discussing an alleged ‘rumor’ that company X is going bankrupt after a scandal which occurred in their accounting department. Individual A becomes very frantic and calls and messages all his/her other friends which have also invested in that company telling them of the news he heard.
3) Regardless of how reliant the source was, Individual A as well as his/her friends call their respective brokers near simultaneously ordering to sell all their shares of company X. The brokers realize that throughout the day, there has been a systematic request to sell ALL shares of company X and notice that something fishy is going on.
4) Given how an equity market operates, those seeking to sell their shares require a respective buyer which a market maker would locate in order to set-up the transaction for execution. However given the rumor’s widespread influence, a vast majority of stock owners are requesting to sell while barely any individuals seek to buy.
5) The overflowing request to sell the shares has caused the stock to plummet the following day based on completely false allegations! The company was never in bankruptcy nor was it in any sort of scandal. In addition, many of the sell orders were unable to be fulfilled and Individual A lost 50% of his/her equity.
6) Weeks later, it turns out that there had been a coordinated scheme by a number of individuals to spread lies and rumors that company X was facing bankruptcy. These individuals shorted the stock and made gains when the stock plummeted. They were able to beat the system, make large gains and never faced any persecution for spreading falsified information or pseudo-insider trading. If shareholders sought to sue them, they would have no case because no one OBLIGED people to believe the story or make investment decisions based on haphazard gossip heard ‘literally’ on the street.
The example above only shows one of a few ‘strategies’ that have been implemented on Egypt’s stock exchange. There has been incredible corruption, insider trading as well as unethical (and also un-Islamic) ways of making money. What is worse is that strong, influential political figures have been using their positions to ‘fool’ the market and make consequent gains. The recent market crash surrounded the selling of EFG Hermes’ (an Egyptian Investment Bank) stock by three major shareholders simultaneously which forced the stock to plummet and bring in huge losses for other investors.
The stock market is about behavior and in Egypt it is clearly the case. Unfortunately the general poverty levels in Egypt have altered peoples’ perception of ethics, they would do anything possible to become wealthier and seek a better life. This of course has incredible negative socio-economic consequences.
Last year, the Economist reported that the Egyptian stock market performed better than other major markets around the world with a whopping 125% profit increase. In retrospect, this seems to be quite peculiar given the recent 30% daily crash.
Those who have the necessary capital have a number of methods which allow them to achieve large portfolio appreciations and quick cash. These methods have primarily revolved around ‘strategic’ investments in ‘key’ corporations.
The word ‘strategic’ should not be confused with the strategies Western investors implement in their respective equity markets. The uniqueness of equity trading on the CASE is that it is a microcosm of Egyptian society, a sine qua non of Egyptian social behavior and a representation of the clash between Western and Eastern ideals. The word ‘key’ is also important in this case because the Egyptian and Arab investors’ choices are made based on critical and pseudo-confidential information.
How is a stock market able to exemplify such sophisticated cultural nuances and Egyptian-society-embedded idiosyncrasies?
By nature, Egyptians like to gossip and spread rumors, conversations and report news. Common social arenas in Egypt include (but are not limited to): 1) shisha (argilah, nargilah, hookah etc.) cafes, 2) barber shops, 3) coiffure salons, 4) restaurants and (less likely) 5) bars. These places have become the perfect venues to eavesdrop on ‘vital’ and seemingly ‘critical’ information on whether to buy or sell stocks. In order to conceive of the consequence, one should imagine such a phenomenon on a city-wide scale; in this case Cairo and Alexandria.
Since there has been an upsurge of interest in investing in the stock market, Egyptians have found it convenient to spread gossip about companies’ earnings, performance as well as upcoming sell-offs, buy-outs etc. The interesting facet of this phenomenon is that it is gossip and rumor-like by nature. THUS, the information is NOT necessarily accurate nor is it guaranteed to make the parties involved wealthy whatsoever.
Also by nature, many Egyptians find interesting methods to beat the system. Beating the system should involve the least amount of effort, yet the highest return possible. Therefore the majority of cases involve unethical, illegal and corrupt ways of fooling the system to one’s advantage. This ranges from bribing police officers to trump any efforts of revoking one’s driver’s license to fabricating birth certificates to obtain certain perks (such as enrolling one’s child one academic year above what he/she should be at). As Egyptian society has become progressively more corrupt, bureaucratic and politically opaque, there has been a corresponding increase in peoples’ distorted perception of ethics.
This has become a cause of much concern. From a religious perspective, a large chunk of Egyptian Muslims have deviated away from what Islam labels as ethical, honest and proper. These can be certainly seen in the stock market.
The following hypothetical scenario should paint a clearer picture:
1) Individual A has 100,000 LE (approximately $15,000 USD) he would like to invest in the market. Individual A has no prior knowledge of the market nor does he have any specific information. Based on candid advice from a brokerage Individual A decides to invest all his/her money in company X.
2) One day, Individual A overhears two people discussing an alleged ‘rumor’ that company X is going bankrupt after a scandal which occurred in their accounting department. Individual A becomes very frantic and calls and messages all his/her other friends which have also invested in that company telling them of the news he heard.
3) Regardless of how reliant the source was, Individual A as well as his/her friends call their respective brokers near simultaneously ordering to sell all their shares of company X. The brokers realize that throughout the day, there has been a systematic request to sell ALL shares of company X and notice that something fishy is going on.
4) Given how an equity market operates, those seeking to sell their shares require a respective buyer which a market maker would locate in order to set-up the transaction for execution. However given the rumor’s widespread influence, a vast majority of stock owners are requesting to sell while barely any individuals seek to buy.
5) The overflowing request to sell the shares has caused the stock to plummet the following day based on completely false allegations! The company was never in bankruptcy nor was it in any sort of scandal. In addition, many of the sell orders were unable to be fulfilled and Individual A lost 50% of his/her equity.
6) Weeks later, it turns out that there had been a coordinated scheme by a number of individuals to spread lies and rumors that company X was facing bankruptcy. These individuals shorted the stock and made gains when the stock plummeted. They were able to beat the system, make large gains and never faced any persecution for spreading falsified information or pseudo-insider trading. If shareholders sought to sue them, they would have no case because no one OBLIGED people to believe the story or make investment decisions based on haphazard gossip heard ‘literally’ on the street.
The example above only shows one of a few ‘strategies’ that have been implemented on Egypt’s stock exchange. There has been incredible corruption, insider trading as well as unethical (and also un-Islamic) ways of making money. What is worse is that strong, influential political figures have been using their positions to ‘fool’ the market and make consequent gains. The recent market crash surrounded the selling of EFG Hermes’ (an Egyptian Investment Bank) stock by three major shareholders simultaneously which forced the stock to plummet and bring in huge losses for other investors.
The stock market is about behavior and in Egypt it is clearly the case. Unfortunately the general poverty levels in Egypt have altered peoples’ perception of ethics, they would do anything possible to become wealthier and seek a better life. This of course has incredible negative socio-economic consequences.
posted by The Egyptian Observer at 5:17 PM
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