There’s nothing new about Egypt’s dollar shortage. What’s different now is it’s battering the stock market.
Egypt’s EGX 30 Index overtook Colombia’s benchmark gauge of equities on Wednesday to become the world’s worst performer this year after the government barred Egyptian investors from acquiring foreign currency by buying shares locally and selling them abroad. Proceeds must now be collected in Egyptian pounds. Commercial International Bank Egypt SAE, which makes up almost 40 percent of the index, tumbled 12 percent since the government limited the trade on June 29 through Wednesday.
Egypt has struggled with a foreign-currency shortage since the 2011 Arab Spring protests sent investors and tourists fleeing. The new rule, which adds to a dollar-deposit limit aimed at fighting black-market trading, coincided with the nation’s first political assassination in decades and the Greek austerity vote that’s fueled a slide in emerging-market stocks.
The losses are due to “a combination of the deterioration in security, the Greece-related emerging-markets selloff and the foreign-currency situation,” Wael Ziada, the head of research at Cairo-based investment bank EFG-Hermes Holding SAE, said by phone on Wednesday. “A source of demand for stocks with global depositary receipt programs, key among which is CIB, has been investors looking for a way to get dollars in their bank accounts. That’s no longer possible.”
The EGX 30 declined 15 percent so far this year, the most since the same period in 2011, the year President Hosni Mubarak was toppled in a popular uprising. The gauge snapped a six-day losing streak on Thursday, rising 0.9 percent. CIB climbed 1.5 percent after JPMorgan Chase & Co. and EFG-Hermes Holding SAE recommended buying the shares after the selloff.
Escalating violence between Islamist militants and security personnel has hurt efforts to revive Egypt’s economy. Chief prosecutor Hisham Barakat, who played a role in the trial of leading Islamists after President Mohamed Morsi’s military-led ouster two years ago, was assassinated in Cairo on June 29. Islamic State-linked gunmen later that week started multiple attacks on Egyptian security services in the Sinai peninsula, to which the military has been retaliating.
Lack of progress on government pledges to investors to delay a capital-gains tax, cut income taxes and hold parliamentary elections is also hurting shares, according to Cairo-based investment bank CI Capital Holding. Laws needed to implement those promises have yet to be passed.
“Investors got what they want to hear, but it isn’t materializing, so it’s meaningless,” Alia El Mehelmy, an equities analyst at CI Capital in Cairo, said by phone. “There could be continued downside in the absence of clarity on legislation from the government.”