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Egypt ETFs Surge, Credit Default Swaps Fall as Mubarak Resigns

Egypt’s default risk dropped and shares rallied as Hosni Mubarak stepped down as the country’s president and handed power to the military, bowing to the demands of protesters.

The cost of insuring Egyptian government debt fell 13 basis points to 324, according to CMA prices for credit-default swaps, tumbling from as high as 379 basis points earlier today. The Market Vectors Egypt Index ETF, an exchange-traded fund that holds Egyptian shares, gained 4.5 percent in New York. Egypt’s 5.75 percent dollar bond due 2020 rebounded, cutting the yield by 14 basis points to 6.33 percent, according to data compiled by Bloomberg.

“The new blood that may come to the system may come up with new ideas that will help the economy,” said Mohammed Ali Yasin, chief investment officer at Abu Dhabi-based financial services company CAPM Investments PJSC. “You’d see an influx of liquidity in loans from regional players.”

Mubarak resigned after protesters occupied central Cairo for the past 18 days, demanding an end to his 30-year reign. Military helicopters buzzed the presidential palace at dusk and Arabiya television earlier reported that Mubarak had left Cairo for the Sinai resort of Sharm El-Sheikh.

“Mubarak has decided to relinquish the office of the presidency,” Vice President Omar Suleiman said in a statement on state television. “He has instructed the Supreme Council of the armed forces to take over the affairs of the country.”

GDRs Rally

Centamin Egypt Ltd., a gold company operating in the North African country, jumped 12 percent in New York, the most in more than a year, to $2.48.

Egypt’s pound was little changed at 5.8800 per U.S. dollar for a third day. The stock exchange in Cairo has been shut for two weeks amid the protests. The country’s benchmark stock index lost 16 percent during the week that ended Jan. 27.

“It should be positive for Egyptian assets, but that said there is still a lot of uncertainty about who will take over and how things will pan out over the coming months,” said Nigel Rendell, emerging-market strategist at RBC Capital in London. Market gains are “a knee-jerk reaction to the fact that Mubarak has stepped down without further military action or further deaths,” he said.

Exchange Opening

While the stock exchange is scheduled to open on Feb. 13, “what happens today is very crucial for that decision,” Finance Minister Samir Radwan said in a Bloomberg Television interview today, before Mubarak stepped down.

“In the short term it’s very positive,” said Jamie Allsopp, who manages the Africa Equity fund at Insparo Asset Management in London. “This would mean it’s more likely there will be a rally in the equity market when it opens.”

Israel credit-default swaps rose 5 basis points to 144, according to CMA prices. Contracts on Lebanon rose 3 to 354, CMA prices show.

Bond gains for African Export-Import Bank, a Cairo-based lender promoting trade among African nations, reduced the yield on dollar notes due in 2014 by 3 basis points to 5.78 percent.

Constitution

“I expect bond yields to fall significantly,” said Gabriel Sterne, senior economist at Exotix Ltd., a London-based broker of emerging-market debt. “We still need more clarity on what the new constitution will be, when elections will be and what will be the role of opposition. In the long term, these reforms are good for markets, good for investors and, dare I say it, good for capitalism.”

Mark Mobius, executive chairman of Templeton Asset Management’s Emerging Markets Group, said yesterday that he remains “very positive” about investing in Egypt and that political turmoil there will lead to reform.

“It is not a matter of democracy,” Mobius told reporters on Feb. 10 in Sao Paulo after a speech to an investor group. “It is a matter of reform. Of letting people get on with business.”

Templeton’s $221 million FTIF Templeton Frontier Markets Fund held 6 percent of its assets in Egypt at the end of 2010, according to data compiled by Bloomberg.

Egypt’s protests began Jan. 25, inspired by an uprising that ousted Tunisian President Zine El Abidine Ben Ali on Jan. 14. Tunisia’s main equity index has lost 11 percent since Dec. 17, when Mohamed Bouazizi, a street vendor, set himself on fire, spurring the revolt against Ben Ali’s 23-year rule.

U.S. Ties

The country has been one of the biggest recipients of U.S. aid since Mubarak came to power three decades ago. The country’s central bank intervened in currency markets three days ago to stem a decline in the pound and says it’s ready to do so again.

The tremors caused by Egypt in world financial markets have been small compared with those resulting from the uprising in Iran three decades ago that toppled Shah Mohammed Reza Pahlavi, which sparked a 140 percent surge in oil and contributed to a global equity rout. World equity-market capitalization climbed to $53.8 trillion this week, the highest level since June 2008.

The MSCI Emerging Markets Index gained 0.2 percent, reversing earlier losses. Brent crude rose 0.6 percent.

Egypt has about 0.3 percent of the world’s crude reserves and its foreign-currency holdings exceed overseas debt by $29 billion. Egypt controls the Suez Canal and the Suez- Mediterranean Pipeline, through which 2.5 percent of global oil production moves, according to Goldman Sachs Group Inc.

Tens of thousands of protesters who crowded into Cairo center after dark greeted the resignation announcement with a roar of delight before dancing, singing and waving the national flag. Outside the presidential palace in Heliopolis, a suburb, cars honked their horns while a crowd of thousands chanted: “The people have toppled the regime.”

The resignation removes “some degree of uncertainty in terms of the stalemate,” said Elisabeth Gruie, an emerging- market strategist with BNP Paribas SA in London. “The crucial question is what’s next and how long it will take to form a stable government and whether it will be recognized and be endorsed by the people of Egypt.”

To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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