Egypt's benchmark stock index edged to its highest level in nearly three years on Wednesday, securing additional gains on the back of another government stimulus package to the tune of $4.36 billion.
As the Arab world's most populous country grinds through a transition overseen by the army, investors have largely taken repeated protests and pervasive violence in stride. A referendum on a revised constitution has been slated to take place on Jan. 14 and 15, paving the way for parliamentary and presidential elections later in the year.
The EGX 30 closed Wednesday at 6,723.64, up 3.24 points, its highest close since Jan. 24, 2011.
The size of the stimulus package, unveiled on Monday, was larger than authorities had previously indicated, and follows a $3.2 billion package launched last August.
(Read more: Egypt on edge as Mursi trial adjourned)
Formerly a favorite among emerging market players, this time around the rally has predominantly been driven by local investors. Return on the benchmark EGX 30 since the fall of Mohamed Mursi on July 3 is 26 percent, and 22 percent over the last three months.
"We expected back in July when we upgraded our rating on Egypt to 'overweight' that the market would reach 6,300 points, so at these levels, three weeks before referendum, the market has rallied ahead of itself a bit," Karim Khadr, head of research at CI Capital, told CNBC.
The central bank under its new governor, Hisham Ramez, adopted an expansionary monetary policy in August, and cut benchmark interest rates at three out of the last four Monetary Policy Committee meetings. The strategy may help explain the recent spike in inflation, which reached a four-year high of 13 percent in December.
GDP growth has been lackluster due to the nation's political volatility, with the government targeting 3.5 percent in the year ending in June 2014.
(Read more: Egypt fights to rekindle economy with rate cuts)
Currency pressures have eased, supported by ongoing aid flows from oil-wealthy Gulf states such as Saudi Arabia, Kuwait and the United Arab Emirates. Foreign reserves have come off from all-time lows and the Egyptian pound has strengthened against the U.S. dollar. As a result, fears of an imminent currency devaluation have for the most part subsided.
Still, Egypt's foreign currency reserves stood at $17.76 billion at the end of November, a fall by some $825 million compared with the previous month and the third-successive decline. However, analysts have told CNBC that the drop may be a blip because of a repatriation of deposits to Qatar.
In comments published by the local press earlier this week, Ramez revealed some capital controls would be eased next month, including a controversial limit of $100,000 for foreign currency transfers abroad.
Yet the interim government has postponed the tough decisions, including a politically sensitive subsidy overhaul urged by the International Monetary Fund to contain the widening budget deficit. Crucial drivers of economic growth, such as foreign direct investment and tourism are still far from the figures reached before the uprising on Jan. 25, 2011.
Mark Mobius, executive chairman of Franklin Templeton Emerging Markets Group, told CNBC's "Access: Middle East" last week that he remained bullish about Egypt.
"It's a leader in the Middle East. What happens in Egypt effects all of the North African countries," the veteran investor, who oversees $53 billion in assets and has exposure to Egypt, explained.
"The government has stated that they do want to continue having open markets after they get over this problem with foreign exchange limitation. So the orientation is positive."
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—By CNBC's Yousef Gamal El-Din. Follow him on Twitter: @youseftv