Political unrest to dominate Egypt’s market

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CAIRO/DUBAI: Political unrest is set to dominate Egypt’s stock market over the coming week, adding to the risks posed by unstable global financial markets.

Egypt’s benchmark index plunged to its lowest levels in 32 months this week after days of street clashes between security personnel and anti-government protestors. The stock market suspended trade for an hour on Tuesday after the broader index fell more than 5 percent during the day.

The benchmark rebounded 17 percent from a low of 3,820 points in October because of cheap valuations and hopes that parliamentary elections starting next week would go smoothly. This week’s tumble more than erased those gains, leaving the index down 48 percent this year. The index now has no chart support above 3,380 points, a multi-year low hit in February 2009.

"The unfolding political events are taking centre stage and clearly the sight of pitched battles in Tahrir square will again discourage investors from returning to the market," said Michael Millar, head of research at Naeem Holding.

Some analysts including Millar said the market might rebound if the ruling military council succeeded in appointing, as it has proposed, a "national salvation government" to replace Prime Minister Essam Sharaf’s Cabinet, which resigned this week but remains in a caretaker role.

"If the protests result in the appointment of a technocrat Cabinet or committee, that could calm the situation and allow a temporary bounce," Millar said.

But he and others said any rebound was likely to be brief, because the market was worrying that a continued decline in Egypt’s currency reserves could eventually lead to a big depreciation of the Egyptian pound, and because many third-quarter corporate earnings had been weaker than expected.

EFG-Hermes, Egypt’s biggest investment bank, said last week that its third-quarter net profit tumbled 64 percent.

"Political stability, economic vision and macro-stability for industries are not there, so what will you trade on?" said Nader Khedr, an investment analyst. 

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