New Egypt Violence Leaves Foreign Investors Nervous

In Sunday’s trade, the Egypt Stock Exchange lost 1.42%, and the coming few trading sessions are likely to reflect how worried the remaining foreign investors are about the renewed violence in Tahrir Square.

An anti-government protestor holds a blooded Egyptian flag in Tahrir Square on February 3, 2011 in Cairo, Egypt.
Getty Images
An anti-government protestor holds a blooded Egyptian flag in Tahrir Square on February 3, 2011 in Cairo, Egypt.

In the clashes that broke out between government troops and demonstrators, two people have been reported killed, many more injured, and three army vehicles were also burned out.

The military has labeled the protesters “outlaws” and denied using force. The United States has already expressed its concern, urging the Supreme Council of the Armed Forces to conduct a “thorough and timely investigation”.

It’s been less than three weeks since investors celebrated the reopening of the Egypt Stock Exchange. While the EGX30 is still far off it’s high of early January, it has clawed back some of the steep losses, from 4,950 points on March 24 to 5,349 today.Most analysts had expected a sharper sell-off In the first trading day of the week on Sunday, foreign investors were once again net-sellers

“We’re extremely worried about violence over the weekend”, Mahdi Mattar, Head of Research and Chief Economist at CAPM Investments, told CNBC. “We’re afraid this could extend to a new phase of instability moving forward”.

Mattar points out that since the onset of the crisis, CAPM Investment no longer has exposure to the EGX, but the possibility of re-entering the market was discussed at one point. Especially “big names” like Orascom Telecom, Mobinil and Orascom Construction Industries were of interest. The company continues to follow the Egypt Stock Exchange closely, but remains “on the sidelines for now”.

Many protestors continued to defy warnings of the army on Sunday, and stayed in the square, demanding the resignation of the council’s head, Field Marshal Mohamed Hussein Tantawi. They say they are becoming increasingly impatient with the pace of transition to a civilian government. On Friday, hundreds of thousands of protesters rallied in the Egyptian capital to call for the prosecution of former President Hosni Mubarak.

In his first comments since stepping down on February 11, Mubarak denied having any assets abroad and was willing to cooperate in any investigation to prove his claim. The audio recording was broadcast on Al-Arabiya TV.

But will further turmoil in Egypt shake regional and global markets again as it did at the height of the revolution? “For the time being, all this uncertainty will remain in Egypt, unless there is a major uprising against the army, or an event of similar magnitude…a tail risk” Matter adds.

The picture on the macroeconomic front is far from improving. Some of the country’s key growth drivers continue to lag, including Foreign Direct Investment (FDI) and tourism. Authorities expect the latter to witness a revenue drop of at least 25% from the $12.5 billion brought in last year. With remittances from abroad expected to have slowed, it was not a surprise when the Egyptian Finance Minister revised down GDP growth rate estimates to 2.5%.

The latest developments may force foreign investors interested in the EGX as an emerging market to shelve their plans momentarily until there is more certainty on the political scene. On Thursday, Kuwaiti newspaper Al-Rai reported that the Kuwait Investment Authority (KIA), the state’s sovereign fund, would set up a company with $1 billion in capital to invest in the EGX.

The Market Vectors Egypt Index was up 0.31% as of Friday’s close, while the broader MSCI Emerging Markets Index posted similar gains of 0.315%.