Egypt Stocks, Bonds Fall as Military Curtails President’s Powers

Egyptian stocks fell, entering a bear market, and dollar bonds dropped after the military curtailed the powers of the nation’s newly elected president. Three-month bill yields jumped to a record.

The benchmark EGX30 Index (EGX30) slumped 3.4 percent to 4,267.87 at the 2:30 p.m. close in Cairo, the lowest level in almost five months. The gauge retreated more than 20 percent from the peak of 5,452.03 on March 7, signaling a bear market to some investors. Orascom Construction Industries (OCIC) lost the most in more than eight months. The yield on the 5.75 percent dollar bonds due April 2020 climbed 12 basis points, or 0.12 percentage point, to 7.02 percent, the highest in four weeks, according to data compiled by Bloomberg.

The country’s ruling military council issued a declaration yesterday after polls closed in the first post-Hosni Mubarak election, giving itself sole authority over its affairs, including the budget and personnel. It also acquired the power to name the 100-member committee that will draft a new constitution, and objection rights to any articles drafted that are deemed “counter to national security interests.”

The market is down “on the back of the military’s announcement, which puts Egypt in an open-ended transition period,” said Wafik Dawood, director of institutional sales desk at Cairo-based Mega Investments Securities.

The military’s announcement came hours before the Muslim Brotherhood said its candidate Mohamed Mursi beat Ahmed Shafik, Hosni Mubarak’s last prime minister, in Egypt’s first free presidential election. Shafik’s campaign has disputed the count. Official results of the election are due by June 21.

Potential Clashes

“If Mursi really wins you are heading towards a potential clash with the legislative power, the military council,” Dawood said. “Assuming Shafik wins, the streets are going to consider it a reversal of the revolution.”

The Brotherhood and its Freedom and Justice Party will join a mass protest planned for tomorrow against the military’s declaration, Hazim Farouk, a party leader, said on the group’s Facebook page.

Egypt’s military council dissolved the country’s five- month-old parliament, of which the Freedom and Justice Party held almost half of the seats, after the constitutional court ruled the law under which it was elected was invalid. The fate of the constitutional-writing committee, voted for by the legislature’s members before the ruling, is still unclear.

‘Credit Negative’

The ruling is “credit negative,” Moody’s Investors Service said in an e-mailed statement today. “Heightened political uncertainty will likely prove a setback to the economy, which was just regaining domestic and foreign creditor confidence,” Moody’s said.

The company cut Egypt’s credit rating four times since the start of uprising against former president Hosni Mubarak last year to B2, five levels below investment grade.

“It was expected the military council would try to make sure their future in the future of the country’s political life was sustained,” Anthony Simond, London-based emerging markets investment analyst at Aberdeen Asset Management Plc., said by phone. “But it presents more turmoil and unpredictability for investors. We’d hoped at this stage we’d have a new parliament and president and that doesn’t seem like it’s going to happen any time soon.”

Orascom Construction, the country’s largest publicly traded builder, plunged 4.8 percent, the most since Oct. 3, to 231.08 pounds. EFG-Hermes Holding SAE (HRHO), the biggest publicly traded Arab investment bank, dropped 3.7 percent to 9.62 pounds, the lowest since July 2005.

Declining Demand

Egypt fell 38 percent short of its 4 billion Egyptian-pound ($661 million) fundraising target at an auction of treasury bills today. The average yield on three month bills surged 30 basis points from the previous sale to 14.753 percent, the highest on record since Bloomberg started tracking the data in 2006. The nine-month yield rose five basis points to 15.905 percent.

The country plans to rely on sales of bills and bonds to fund about three-quarters of the budget deficit in the fiscal year that starts in July, Finance Minister Momtaz el-Saieed said last month.

Five-year credit default swaps dropped one basis point to 654 basis points today, according to CMA, which is owned by CME Group Inc. and compiles data from the privately-negotiated market. The rate has been the highest in the Middle East since October. The Egyptian pound was little changed at 6.0498 a dollar.

To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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