Egyptian Equities Tumble To Five-Month Low On Rising Political Tensions

Stocks on the Egyptian Exchange slumped last week on rising political tensions with the benchmark EGX 30 Index dropping to a five-month low of 4,013.60 points on 21 June. It closed down nearly 9% on the previous week�s level. Investors have fled Egyptian equities with confidence taking a battering on concerns that political instability will continue. Crowds filled Cairo�s Tahrir Square and continued to protest against the Supreme Council of the Armed Forces dissolution of parliament, and the delay in announcing results of the run-off for president. This pits the Muslim Brotherhood�s Muhammad Mursi against former Mubarak-era prime minister Ahmed Shafiq, with both claiming victory and alleging fraud on the other side.

Stock market trading is expected to stay volatile while tensions remain. In addition to pressure on equities, the Egyptian pound slumped to its weakest level against the dollar in seven years. It was quoted at $1=E�6.0384-6.0675 on the Central Bank of Egypt�s website on 21 June. Egypt�s credit default swaps (CDS), which insure against default, climbed to their highest level in over three years, jumping about 45 basis points (bps) on 21 June to 715 bps. Egypt�s growing political problems will make it more difficult for the country to attract much-needed aid from foreign donors and hamper its economic recovery. The IMF wants to see some political accord before it provides Egypt with an aid package (MEES, 18 June). The political situation also needs to stabilize before Egypt can attract money to its power, infrastructure, and energy projects, although the Egyptian Refinery Company managed to close its financing for its $3.7bn refinery before the recent turmoil reached its peak (see page 11).

The CBE�s Monetary Policy Committee kept rates unchanged in its 14 June meeting, citing the balance of risks surrounding inflation and GDP outlook. It left the overnight deposit rate at 9.25% and overnight lending rate at 10.25%. The consumer price index (CPI) fell 0.24% in May, bringing the annual rate to 8.3%, down from 8.78% in the previous month. Preliminary data, said the CBE, showed that real GDP climbed 5.2% in the third quarter (fiscal 2011-12 began on 1 July 2011) following �feeble� growth of 0.35% in the first two quarters. During the first three quarters GDP was up 1.8% on the back of tentative recovery in the construction sector, although this was partly suppressed by continued weakness in manufacturing and tourism, said the CBE. Given the heightened uncertainty over the past year, investment levels remain low, it added.

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