Egyptian Stocks Lose World’s Best Performer Spot Amid Unrest

Egyptian Stocks Lose World’s Best Performer Spot Amid Clashes
An Egyptian protester runs with a tear gas canister in his hand during clashes with riot police in Cairo's Tahrir square on Sunday. Source: AFP/Getty Images

Egypt’s benchmark stock index gave up its spot as the world’s best performer this year after unrest spurred the worst drop since the 2011 revolt. Shares rose today as political leaders sought to resolve the crisis.

The EGX 30 Index, which yesterday tumbled the most since the January 2011 start of the uprising that toppled Hosni Mubarak, advanced 2.6 percent to 5,047.17 at the close in Cairo. That brought this year’s increase to 39 percent, the third-biggest advance, after Pakistan and Turkey among 93 indexes tracked by Bloomberg. The Egyptian pound, subject to managed float, weakened 0.2 percent, the most since September 2011, to 6.1036 a dollar.

Clashes broke out between supporters and opponents of President Mohamed Mursi after he issued a decree granting himself sweeping powers, which his critics likened to policies of the regime hundreds died last year to topple. Opposition groups called for more mass protests in Cairo’s Tahrir Square tomorrow, fueling concern the crisis may escalate.

“This week will be key in Egypt’s future,” Teymour El-Derini, Cairo-based director of Middle East and North Africa sales trading at Naeem Brokerage, said in a report yesterday. “Everyone will be watching and everyone will be down in Tahrir on Tuesday. It’s definitely far from over.”

Molotov Cocktails

Mursi is due to meet with judiciary leaders today, amid judges threats to stop work nationwide, to discuss a resolution to the worst political crisis since he took office in June. Mursi, an Islamist politician elected to succeed Mubarak, issued a decree last week shielding all his decisions from judicial oversight. The decree fired the public prosecutor and protected an Islamist-dominated constitution-drafting panel from court challenges.

Commercial International Bank Egypt SAE, the country’s biggest publicly traded lender, gained 3.1 percent to 34.82 pounds after losing 9.8 percent yesterday. Orascom Construction Industries, Egypt’s biggest publicly traded company, recovered from yesterday’s 9.9 percent plunge, to add 2.8 percent to 233.83 pounds. Companies listed on the index lost a combined 22 billion pounds ($3.6 billion), or almost 10 percent of their market capitalization, yesterday.

Mursi’s opponents and supporters of the Muslim Brotherhood, the group from which he hails, hurled rocks and Molotov cocktails at each other in Cairo and other cities over the weekend. Both sides are planning mass rallies tomorrow in cities around the country, raising concerns of more clashes.

The decrees were “a big blow to the revolution, the transitional period and the democracy Egyptians were hoping to establish that could have dire consequences on the political scene,” Khalil el-Anani, a political analyst at the U.K’s Durham University, said by phone.

IMF Support

Bets that Egypt will move forward in its transition to democracy and secure foreign aid have helped shares rally this year. The government reached preliminary agreement with the International Monetary Fund Nov. 20 for a loan of as much as $4.8 billion. Authorities say the loan will help restore investor confidence and lower the budget deficit, which widened to 11 percent of economic output last year, the highest in at least five years.

Investors should buy shares of Orascom Construction and real estate developer Talaat Moustafa Group Holding as the political instability that caused yesterday’s losses will probably be resolved soon, Religare Capital Markets Ltd., an emerging markets investment adviser, said in an e-mailed note yesterday.

‘Inclusive’ Dialogue

The 30-stock benchmark measure trades at 1.25 times book value, according to data compiled by Bloomberg. The compares with an average of 2.43 times book value for Morocco’s Madex Free Float Index and 1.72 times for Saudi Arabia’s Tadawul All Share Index.

Mursi met yesterday with his top advisers for the second time in two days amid efforts to defuse the crisis. The president’s office, in an e-mailed statement, said the decrees were temporary and that the president will “engage all political forces in the inclusive democratic dialogue to reach a common ground” and bridge differences over the new constitution.

Representatives of Egyptian churches have already walked out of the committee drafting the charter, which they say is dominated by Islamists.

Investor Concern

“The lack of stability is creating an overhang on the risk premium of the country and will not attract foreign investors regardless of the underlying prices of the stocks,” Yazan Abdeen, who helps oversee about $300 million as ING Investment Management’s Middle East and North Africa fund manager in Dubai, said by phone yesterday.

The yield on Egypt’s 5.75 percent dollar-denominated bonds maturing in April 2020 gained 11 basis points today, the biggest advance on a closing basis since Sept. 24, to 5.24 percent. The average yield on nine-month treasury bills jumped 30 basis points at an auction yesterday to 13.19 percent.

“Banks are becoming more conservative in anticipation of political developments,” Sherif Othman, head of treasury at Arab Bank Corp., said by phone yesterday. “Investors will be concerned any time there’s blood on the streets, so the government has to start a dialogue to resolve the current situation.”

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