Egypt Stocks World's Worst on Devaluation Bets, Corruption Probe

Egyptian stocks fell the most in more than two weeks as investors speculated the country will devalue its currency for the third time this year and a government corruption investigation may extend to listed companies.

The benchmark EGX 30 Index retreated 3.4 percent to 6,924.05 at the close in Cairo, the most globally among 93 gauges tracked by Bloomberg. About 519 million Egyptian pounds ($66 million) of shares traded, or 19 percent more than three-month daily average. Talaat Moustafa Group, the nation’s biggest listed property developer, tumbled the most in almost three years, and the EGX 30 Real Estate Index declined 5.8 percent, the most in two weeks.

Egyptian stocks slide with the pound
Egyptian stocks slide with the pound

The Egyptian pound will probably weaken 2.8 percent over the next two weeks, JPMorgan Chase & Co. said in a report Tuesday. Investment Minister Ashraf Salman on Monday voiced a preference for a weaker exchange rate to preserve falling reserves. Stocks are also being pressured by a corruption investigation that led to the resignation and arrest of Egypt’s agriculture minister, the first such case in President Abdel-Fattah El-Sisi’s administration, fueling concern it may extend to other government officials and listed companies.

For foreigners who already planned to sell shares, "talk of devaluation is pushing them to sell now rather than wait and take the exchange-rate loss," said Mohamed Radwan, the head of equities at Cairo-based Pharos Holding. "Local investors are worried the corruption case may impact businessmen associated with listed companies, especially in the real estate sector."

The EGX 30 fell into a bear market in July, down from a seven-year peak in February, as a shortage of foreign currency and natural gas supplies weighed on growth in Egypt’s non-oil economy. Egypt’s central bank has held the pound at about 7.83 per dollar since July, a rate that’s increasingly perceived as overvalued amid depreciating emerging market currencies following China’s weakening of the yuan last month. The currency has lost 8.7 percent this year in two rounds of devaluation.

Commercial International Bank Egypt SAE, the biggest listed lender, contributed the most to the EGX 30’s decline, dropping 3 percent. JPMorgan said the stock’s recent sell-off provides for an "attractive entry point," raising its annual profit estimate 14 percent through 2017. Talaat Moustafa fell 7.1 percent on almost two times the stock’s three-month average daily volume.

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