Egypt Stocks Surge After Uprising Anniversary

Last updated on: January 26, 2012 at 9:28 am by

Egypt Stocks Surge After Uprising Anniversary 2012-01-26T09:28:04-07:00

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CAIRO (AP) — Egypt’s stock market posted its strongest gains in about 10 months, with the benchmark index rallying 7 percent on Thursday as the peaceful passing of the one-year anniversary of the uprising that ousted former President Hosni Mubarak injected long-needed optimism into the market.

The Egyptian Exchange’s temporarily halted trade after the broader EGX100 index hit a 5 percent circuit-breaker — a measure aimed at calming the market. With the resumption of trade roughly 30 minutes later, the index was up 5.38 percent while the benchmark EGX30 index was up 7 percent, to 4,425 points, by about 1:45 p.m. local time.

The gains built on a solid week of advances by the index as the country’s newly elected parliament met for the first time on Jan. 23. That optimism received a much-needed boost after the rallies throughout Egypt on Wednesday passed with little of the kind of violence that has marred other such gatherings over the past few months.

“Local institutions and many investors were aggressively waiting for Jan. 25 to pass peacefully to build positions,” said Mostafa Abdel-Aziz, a senior broker with Mideast investment bank Beltone Financial’s brokerage arm.

After the successful convening of the parliament session and the relative peace of the anniversary, those investors “who didn’t have the guts to get in before just did it,” he said.

The day’s rally on the market was the strongest since the Egyptian Exchange restarted in March after a nearly two month closure last year following the start of the uprising that pushed Mubarak from power in mid-February. Since then, the Egyptian stock market was dogged by losses, and ended 2011 with losses of over 45 percent on the EGX30.

Traders said that foreign investors, who had been unloading their positions for much of last year, stepped aggressively back into the market on Thursday.

“There were a lot of short squeezes in the market, which justifies the significant foreign buying,” said Abdel-Aziz. “Everybody is closing their short positions.”

While investors found some measure of a silver lining, Egypt faces daunting challenges.

The country’s economy has been battered over the past year, with net international reserves down 50 percent by the end of December and economic growth, at best, projected to be anemic. Unemployment is up while little progress has been made in addressing some of the core issues that led to the uprising, such as jobs, housing and income equality.

After having initially turned down the offer, Egyptian officials, faced with worries about a mushrooming budget deficit, have asked the International Monetary Fund for a $3.2 billion support package. Economists say the funds, while welcome, could be too little, too late, to help Egypt avert a devaluation in the currency that would open the door to higher inflation.

Investor concerns about Egypt have revolved largely around the uncertainty in the country’s political transition. The youth and secular groups that spearheaded the uprising want the country’s military rulers, who took over from Mubarak, to hand over power now instead of by the end of June, as the generals have stated.

In addition, the dominance of Islamists in the recent parliamentary elections injected new questions and worries about Egypt’s political course, with some worried that instead of economic reform, the powerful Muslim Brotherhood that won 47 percent of the parliament seats would focus more on religion. The group, however, has said its main priority is to get the economy back on its feet.

“All told, the market’s early positive reaction to Egypt’s new parliament may be short-lived if external and fiscal financing needs are not addressed soon,” said London-based Capital Economics in a recent research note.

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