Investors optimistic about change in Egypt

Bulls seem to be waiting for a positive outcome from widespread pro-democracy unrest in Egypt, one of Africa’s biggest stock markets. The Egyptian Exchange (EGX, www.egyptse.com, formerly known as the Cairo and Alexandria Stock Exchange), has been closed for several days as unrest intensified. Investors seem to believe that the outcome of political change will be good for asset values and prices have climbed for depository receipts of Egyptian companies and an Egypt exchange-traded fund available internationally.
Leading emerging markets investor Mark Mobius has told an interviewer on Citywire on 31 Jan that a change to the regime of President Hosni Mubarak could provide a “tremendous boost not only to Egypt but to the Middle East”. He added: “We’re looking to buy in at the right price”. However, he is waiting for the stock market to drop another 10%-15% on the political instability.
Mobius is reported to be excited by the potential of Egypt’s young well-educated population, leading the uprising: “Let these guys loose and the place could go wild. I’m optimistic.” His investments in Egypt include banks, telecoms and construction companies.
Popular protests began on 25 January and news reports say 1 million Egyptians answered calls to join demonstrations in major centres on 1 February. Today there are reports of clashes with supporters of Mubarak, although the army has declared it will not fire on peaceful protestors and has moved to keep the sides apart. The UN estimates that as many as 300 people may have died.
Banks and the EGX are closed for a fifth day today (3 Feb) and most of the rest of the economy has been closed amongst unprecedented peaceful and popular protest. Banks are expecting to open on 6 February and the stock exchange possibly the next day, according to the Financial Times.
The EGX 30 Index fell by 16% last week before the market closed, reports Bloomberg news, including 11% last Thursday (27 Jan) when the market closed. Debt rating agency Moody’s cut its rating on sovereign debt from Ba1 to Ba2. It is the second agency to downgrade i the light of concerns grow over public finances.
However, the Financial Times reports that investors are betting the market will rebound. An exchange-traded fund, the Market Vectors Egypt Index ETF, run by Van Eck, has seen its price climbing and stopped buy orders on Monday. However, it says money had been flowing in, and more than doubled its existing $11.6 million assets with a $12 mln cash inflow last Friday, pushing up its price by 10% and leaving a big 12.5% premium to the underlying assets, although valuing these will not be possible until the market reopens. Bloomberg says today the premium is 11%, the second largest of 1,400 ETFs it tracks.
The FT quotes Ed Lopez, director of marketing at Van Eck as saying sell orders are still possible: “We did not want to put any gates up to prevent investors from withdrawing their cash if they wanted to.” Creation and redemption orders are done for large institutional investors or market makers and “Individual investors have been able to buy or sell the Egypt ETF in the secondary market as they want,” said Mr Lopez.
Egyptian assets listed in London and Canada have are also climbed, including Orascom Construction Industries, Orascom Telecom Holding, Centamin Egypt (gold mining), and Transglobe Energy. According to Bloomberg today, London-traded global depositary receipts of Orascom Construction Industries SAE, the country’s biggest publicly traded building company, gained 16% from a 1.5-year low on 31 Jan and Egypt’s 10-year dollar bonds rallied 1.1% this week, down from yesterday’s figure.

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