Egypt's (Possible) Market Reopening: What to Expect

Egypt reopens! Maybe. Did the Morgan Stanley Capital Index (MSCI) people force Egypt's hands? Egyptian officials said they would reopen the Egyptian stock market on Wednesday. The reopening has been delayed at least five times already, so is there any reason to believe this might be the real thing?

Yes. Egypt is 0.2 percent of the MSCI Emerging Markets Index...the MSCI has indicated if they do not reopen by the end of the next week they may be removed from the Emerging Markets Index. This will likely cause foreign investors indexed to the fund to sell their holdings, which will cause stocks to drop even more.

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Egyptian officials are undoubtedly concerned that a big drop in the markets (a 20 percent drop is likely) will create even more social unrest. That is not an unreasonable assumption: 60 percent of the stock market there is owned by average Egyptians.

And with the Egyptian Interior Ministry on fire, allegedly set fire by police officers calling for better wages, you can bet the nervousness level is rising fast.

Still, they will likely reopen in the coming days, but with elaborate circuit breakers: trading will be halted for 30 minutes if the market moves up or down 5 percent, and if stocks move 10 percent up or down, trading will close for the rest of the session(!). They have also reduced their trading hours to three hours from four hours. Seriously.

So here's what likely will happen: the market will open, in seconds it will drop 5 percent. It will then remain closed for 30 minutes. When it reopens, it will drop another 5 percent in seconds. It will then close for the rest of the day.

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