The Egyptian stock market suffered its biggest retreat of the year yesterday after Mohammed Morsi, the newly elected president, challenged the country's generals by calling for the dissolved parliament to reconvene.
The EGX 100 Index fell 3.8 per cent, its biggest fall since December.
The benchmark EGX 30 Index briefly fell as much as 5.4 per cent, the biggest decline since March last year, before paring losses to close 4.1 per cent lower at 4,698.52.
The speaker of Egypt's parliament called for the legislature to reconvene yesterday, after Mr Morsi's decree on Sunday ordering the results of the previous parliamenary elections to stand until a new parliament is elected. But the supreme constitutional court said its ruling dissolving parliament last month was binding, according to a statement carried by the official Middle East News Agency.
International investors are increasingly anxious about the country's ability to secure an urgently needed US$3.2 billion (Dh11.75bn) loan from the IMF, as tension between the Egyptian army and the Muslim Brotherhood rises and the country's foreign reserves dwindle.
"Given that [the] political situation remains delicately balanced and an IMF deal is yet to be agreed, we remain cautious on Egyptian equities and bonds in the near term," analysts from Capital Economics wrote in a research report. "Indeed, if the government fails to turn the tide in the coming two to three months, a disorderly devaluation of the pound could soon become a reality."
The country's foreign reserves rose by $18 million to $15.5bn at the end of June, the third consecutive month of increases, according to the latest central bank data, released on Sunday.
Egypt's foreign reserves have been more than halved as a result of the revolution that forced Hosni Mubarak from the presidency last year.
However, the latest figure was a disappointment, considering that it factored in a revaluation of Egypt's gold reserves, analysts from HSBC wrote in a research report.
"The reserves numbers underscore the external pressure Egypt is under, amid continued political uncertainty," the report said.
"President Mohammed Morsi's announcement on 8 July that parliament would be reinstated and a new election held 60 days after the passage of the new constitution adds little clarity."
Amid the broader sell-off, EFG Hermesstock slumped 4.4 per cent to 10.60 Egyptian pounds as the investment bank began its latest legal tangle.
A trial began yesterday in a market-manipulation suit linking Gamal and Alaa Mubarak, sons of the former president, to EFG Hermes's sale of Al Watany Bank to National Bank of Kuwait in 2007. Both men deny corruption charges.
They are on trial alongside seven other men, including the current co-chief executives of EFG Hermes. The investment bank said in May that it was confident in the "soundness of its legal position".
The trial has been adjourned until Saturday, state TV reported. Previous charges against the Mubarak sons were dropped during the trial last month in which their father was sentenced to life in prison.
* with agencies
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