Egyptian equities: One step forward, two steps back

Published April 30th, 2012 - 02:14 GMT
The decline of Egypt's foreign exchange reserves shows little sign of abating
The decline of Egypt's foreign exchange reserves shows little sign of abating

After a quarter in which they outperformed all but one market in the world, Egyptian equities are back in rocky territory. The EGX 30 index fell 0.2 percent yesterday to 4,920.96 after a weekend during which Saudi Arabia, one of Egypt's biggest benefactors, closed its embassy in Cairo.

Although the index regained some of the losses experienced after markets opened for the week, political bickering and fractious international relations are hurting investor confidence.

The 38.5 percent rise in the EGX 30 in the first quarter has given way to a 1.9 percent slump since then, as Egyptian politicking clouds the outlook for the Arab world's only stock exchange that is tracked by investors in emerging markets.

A developing rupture with Saudi Arabia, which led the kingdom to close its embassy and consulates on Saturday after protests, is adding to the malaise. Saudi officials said the protests, which they termed unjustified, were an attempt to take over the embassy.

As markets sold off, Farouk El Okdah, the central bank governor in Egypt, said the spat was unlikely to affect the delivery of a US$1.75 billion aid package promised by Saudi Arabia. "It will arrive for sure," Mr El Okdah told Bloomberg News. "This has been agreed on between the two countries." The Saudi aid package and separate assistance from the IMF are viewed as crucial in propping up the country's finances.

The decline of Egypt's foreign exchange reserves shows little sign of abating, with reserves dwindling for a 15th consecutive month to $15.1bn at the end of March.

Amid the gloom, Egypt's ministry of finance said it raised 2bn Egyptian pounds yesterday from an auction of treasury bills, far short of the 3.5bn pounds it had hoped to raise.

On Thursday, Moody's Investors Service deferred its review of Egypt's public finances until June, pending the conclusion of a mission by the IMF and the outcome of the presidential election, with a downgrade of the country's sovereign rating looming.

"Negotiations with the IMF and the availability of a very substantial extraordinary external support package from Gulf Cooperation Council governments have evidently become contingent on the upcoming presidential elections and the ability of Egypt to form a stable government," the ratings agency said in a report.

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