Egypt Stocks Surge on Relief After Morsi Ouster

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Egyptian opposition protester celebrates on news the Egyptian military will be temporarily taking over from the country's first democratically elected president Mohammed Morsi.

Egypt's benchmark stock exchange surged on Thursday and oil prices eased on relief after the ouster of Mohammed Morsi as Egypt's president didn't result in large-scale violence as some had feared.

Egypt's EGX index closed up 7.3 percent on Thursday while Nymex crude prices declined 0.2 percent to $101.16 per barrel from the previous day's 14-month high above $102 a barrel.

(Read More: Egyptian Military Says It Has Ousted Morsi; Crowds Celebrate in Cairo)

Despite the relief there was plenty of political uncertainty, especially over how Morsi's Muslim Brotherhood would respond and whether they would turn to the type of militancy Egypt experienced in the 1990s. Several senior leaders of the Muslim Brotherhood were held by the military on Wednesday.

"I think this was a coup d'etat by the military even if it has a lot of support from the public right now and whether it's called that or not," Steven Fish, professor of political science at the University of California, told CNBC Asia's "The Call."

"Everyone is relieved by the coup but the military doesn't do a good job of ruling. Morsi's government was the first democratically elected government Egypt had for a while and that makes it hard for a new government to declare legitimacy. So the situation is very complicated," he added.

Morsi was elected a year ago but Egyptians have been frustrated by a weak economy and angered by Morsi's decision to force through a constitution that favored Islamists and ignored minorities. That frustration spilled over into protests that have grabbed attention globally in recent weeks.

For the world's financial markets, developments in Egypt are key because the country controls the Suez Canal, one of world's busiest shipping lanes. Those lanes remained open on Thursday, helping ease fears and sending oil prices lower.

(See: Scenes From the Egyptian Protests)

Some analysts were not too concerned about the political strife in Egypt.

"The Suez Canal will remain functional regardless of who is in power and that's the important thing for oil markets," said Mark Matthews, head of research for Asia at Bank Julius Baer. "It's sad for the country's politics as he [Morsi] was democratically elected, but there's unlikely to be a long-term impact."

For others, uncertainty about Egypt, where the military has said fresh elections would be held, was another reason to be cautious towards risky assets such as stocks.

(Watch Now: Kilduff: Oil & Egypt)

Indeed, Egypt's woes are just one source of concern for investors. In Europe, a political crisis in Portugal has triggered a sharp spike in government bond yields while Friday's key U.S. jobs report is another risk event that could shape expectations on the timing for an unwinding of U.S. monetary stimulus.

"We have political events, we have monetary easing in Europe under question, we have Egypt, so the market is playing very cautious right now," said Dodge Dorland, chairman and chief investment officer at Landor & Fuest Capital Managers in New York, talking about U.S. stock markets on "The Call."

"We have a very split market right now, the Russell 2000 and the Nasdaq are doing well but the Dow and S&P are down, so we are very cautious at this point," he added.

- By CNBC's Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC