Egypt Stock Euphoria Has Foreigners Selling as Recovery Delayed

Egypt’s biggest stock-market rally in more than a year had foreign investors selling holdings on concern the military-backed political transition will delay the nation’s economic recovery.

While local buying sent the benchmark EGX 30 Index soaring 7.3 percent yesterday, non-Arab foreign investors were net sellers of about 103 million Egyptian pounds ($15 million) of shares, the most since March 28. Egypt’s $1 billion of Eurobonds due 2020 gained for a second day, extending yesterday’s record slide in yields.

Interim President Adly Mansour -- sworn in after protests prompted the army to overthrow Egypt’s first freely-elected leader -- inherits the worst economic slump in two decades and the biggest budget deficit relative to economic output in the Middle East. Egypt’s bid for a $4.8 billion International Monetary Fund loan has yet to be accepted, leaving the country reliant on foreign aid.

“Egypt’s economic fundamentals remain unchanged, so the market gave foreign investors the chance to sell into the rally,” Ahmad Alanani, Dubai-based director for the Middle East at Exotix Ltd., said by phone yesterday. “The political picture today is more polarized than ever before.”

The Egyptian authorities moved to arrest and impose travel bans on ousted President Mohamed Mursi and other Islamist leaders, according to state-run media. Mursi supporters are scheduled to protest across the North African nation today.

Yields on the government’s 2020 benchmark bonds declined 10 basis points to 9.18 percent by 4:29 p.m. in Cairo, extending yesterday’s 148 basis point plunge, according to data compiled by Bloomberg.

Debt Repayments

The Market Vectors Egypt Index ETF rose 2.2 percent to $42.99, poised for the highest closing price since June 3. Circle Oil Plc, the Limerick, Ireland-based oil producer with assets in Egypt, rallied 5.2 percent in London to 17.75 pence. OCI NV, the Amsterdam-based parent of Orascom Construction Industries, fell 2.4 percent to $27.32 on Euronext Amsterdam.

“The majority of institutional investors will keep their powder dry and await developments,” Julian Bruce, head of institutional trading at EFG-Hermes Holding SAE in Dubai, said by e-mail yesterday. A “positive investment case for a beaten-up market” can be made if violent protests end, experienced politicians take charge and the IMF deal is expedited, he added.

Egypt has a record 169 billion pounds ($24 billion) of local-currency debt repayments due this quarter, according to data compiled by Bloomberg. It also must pay about $4.4 billion of local debt by year-end, denominated in dollars and euros, which is equivalent to 28 percent of foreign reserves, enough to cover about three months of imports, according to central bank data.

Same Challenges

Mansour will need to contend with the same challenges that paralyzed the government of Mursi -- a worsening economy, soaring unemployment and mounting debt. He’ll also face competing political agendas from the Islamists who backed Mursi and opposition groups that accused him of rolling back freedoms and monopolizing power.

The interim president is tasked with forming a coalition government that will prepare the country for parliamentary and presidential elections. The National Salvation Front, a coalition of parties that opposed Mursi and helped drive protests against him, said yesterday it would not exclude political Islamist groups going forward.

Non-Arab investors sold 213 million pounds in the last three days, the most since June 2012, data compiled by Bloomberg show. The EGX 30 index has rallied 12 percent this month after a 13 percent drop in June.

While “there’s a reason for optimism, with the army wanting quickly to transition back to civilian rule, foreign investors remain concerned,” William Jackson, a London-based emerging-markets economist at Capital Economics Ltd., said by phone yesterday. “Judging from the events over the past two years, political unrest can emerge quickly and unpredictably.”

Before it's here, it's on the Bloomberg Terminal.