Egypt's stock market surged on Tuesday, despite the ongoing political crisis which has seen President Mohamed Morsi rebuff an ultimatum from the army to resolve the situation.
The benchmark index closed 4.9 percent higher on Tuesday at 4,987 points, its highest level since June. The market surge came despite Morsi's insistence that he would continue with his own plans for national reconciliation, rejecting the army's 48-hour deadline to agree on common ground with liberal rivals.
(Read More: Egyptian President Rebuffs Army Ultimatum)
William Jackson, emerging markets economist at Capital Economics, said he was surprised by the market upturn.
"The army declaration and subsequent response appear to have raised the risk of an extreme outcome, which you would have thought would cause investors to take fright. But it hasn't," Jackson told CNBC.
"The bigger picture is that in these kind of scenarios it's highly uncertain how things will pan out, and so assets can be extremely volatile and react to shifts in sentiment."
(Read More: Thousands in Egypt Protest Against President Mursi)
Stephen Bailey-Smith, head of Africa research at Standard Bank, said the market rally was likely to be due to buying by domestic, rather than foreign, investors.
"It is hard to find local equity market participants who feel the Morsi administration would deliver a supportive environment for equities over either the short- or medium-term," Bailey-Smith told CNBC.
"The military ultimatum makes it less likely that a Morsi administration will dominate the political economy going forward and it also makes it less likely that the present political impasse and economic decay will continue."
Meanwhile, billionaire businessman and founder of the opposition Free Egyptian Party, Naguib Sawiris, told CNBC it was time for Morsi to step down "with dignity".
The chairman of Orascom Telecom said there are currently three times more people protesting against Morsi than elected him to power, and urged the president to prevent the outbreak of a civil war in Egypt by ceding to the "wishes of his people".
"All we are asking Morsi today is that he steps down with dignity, and not to have his members of the retired terrorists and fanatics start a civil war in Egypt. He should leave, if he was a real true Egyptian patriot then he should cede to the wishes of the people. There are 30 million people in the streets of Cairo every day, three times the number that elected him asking him to step down," he said.
Sawiris described the Muslim Brotherhood's regime as "authoritarian, dictatorial and fascist" and called for an immediate election, under clear and transparent rules.
(Read More: Egypt Protests Set for Showdown, More Violence Feared )
U.S. President Barack Obama has urged President Morsi to respond to the protesters' concerns, and said the political crisis needed to be resolved by talks. "The current crisis can only be resolved through a political process," the White House said in a statement.
In the meantime, several senior members of Morsi's cabinet are reported to have resigned, including foreign minister Mohamed Kamel Amr.
Bob Janjuah, a strategist at Nomura, said financial markets' subdued reaction to the Egyptian protests showed "complacency".
"People get complacent, they get used to these kinds of things and they are not yet connecting the dots," Janjuah said. "All of a sudden there was democracy in Egypt and they got rid of the old leadership, therefore things should get better – but it takes a long time."
(Read More: Egypt Clerics Warn of Civil War)
"In some ways Egypt is a young nation and young nations go through a lot of up and down before they find their path," he added.
—By CNBC's Jenny Cosgrave and Katrina Bishop