Egypt Shares Slide the Most in a Month on Deadly Clashes

Egypt’s stock index dropped the most in almost a month and the benchmark bonds declined after dozens were killed in clashes between the military and supporters of deposed Egyptian President Mohamed Mursi.

The benchmark EGX 30 Index decreased 3.6 percent, the biggest retreat since June 12, to 5,123.06 at the close in Cairo as all but two stocks declined. Commercial International Bank SAE led the drop, losing 3.7 percent on volume of 1.7 times the three-month daily average. The yield on the 5.75 percent bonds due in April 2020 jumped 30 basis points to 9.37 percent at 4:26 p.m. in Cairo, according to data compiled by Bloomberg.

Shares and bonds reversed last week’s gains after at least 42 people were killed and more than 300 wounded in fighting outside the Republican Guard headquarters in Cairo, a main security installation. The army said pro-Mursi protesters opened fire, while the Muslim Brotherhood, from which Mursi hails, said the attacks were unprovoked. Egypt’s stock index rallied 14 percent last week as the military ousted Mursi.

“The market is down, because of the clashes,” Teymour El-Derini, director of Middle East and North Africa sales trading at Naeem Brokerage in Cairo, said by phone. “It’s just a correction, one that was needed after the gains last week. Unfortunately, it’s happening on sad news.”

Deeper Polarization

The value of shares traded fell to 394 million Egyptian pounds ($56 million) after rising to 525 million pounds yesterday, the highest since May 30. Commercial International, the nation’s biggest publicly traded lender, fell the most since June 12 to 33.26 pounds.

Five-year credit default swaps, which protect investors against non-payment of debt, rose one basis point to 775 today, according to data provider CMA. The contracts climbed to a record 925 on July 2.

Last night’s clashes threatened to deepen political polarization and derail efforts by the country’s interim leaders to form a government. The ultra-conservative Nour Party, the only Islamist group that backed the army’s move to oust Mursi, suspended its participation in talks to name a prime minister because of the “massacre,” Shaaban Abdel Alim, the party’s assistant secretary-general said by phone. The army installed Adly Mansour last week as interim president.

“If this polarization continues, the impact on the economy is going to continue to be negative however you look at it,” said Ahmad Alanani, Dubai-based director for the Middle East at Exotix Ltd.. “In the short term, credit ratings will continue to be skewed toward the negative until we see the interim government put in place a road map.”

Missing Target

Fitch Ratings cut the nation’s rating by one level last week to B-, or six levels below investment grade. The ouster of Mursi may damp economic growth and fan political instability, Fitch said, placing Egypt at the same level as Greece and Cyprus.

The country is struggling with the worst economic slump in two decades and the biggest budget deficit as a percentage of economic output in the Middle East. It plans to raise 200 billion pounds at local debt auctions this quarter in part to meet a record 169 billion pounds of repayments.

The Finance Ministry missed its 2.5 billion-pound target at today’s auction of five-year and 10-year treasury bonds. The ministry raised 1.74 billion pounds, according to central bank data on Bloomberg.

Political instability this year placed pressure on the Egyptian pound, which has depreciated 9.3 percent in 2013, the worst performer in the region after the Syrian pound, according to data compiled by Bloomberg. The currency strengthened 0.1 percent to 7.0196 a dollar today after the central bank sold $37.6 million at a currency auction. The regulator started the sales in December to limit banks’ access to dollars in order to stem a drop in foreign reserves.

Net foreign reserves declined 7 percent last month to $14.9 billion, less than half the level before the 2011 uprising that ousted Hosni Mubarak.

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