x Abu Dhabi, UAESaturday 20 January 2018

Investor relief drives Egypt market higher

Markets Update: Egypt's markets have their best day in nine years after Mohammed Morsi is elected president

Speculative money flowed back to Egypt yesterday on relief after the result of the presidential election.

Despite declines on most world markets, Egypt's main EGX30 benchmark index closed the day up 7.5 per cent at 4482.48, the biggest single gain recorded in nine years.

"The knee-jerk reaction is in a sense a reflection that one element of uncertainty over the election is now resolved," said Raza Agha, senior economist at Royal Bank of Scotland. The chance of confrontation over the outcome of the presidential vote is now reduced, Mr Agha said.

Although the lack of dispute over the result had averted a fresh crisis, the country's fragile long-term prospects were underscored by the ratings agency Standard & Poor's (S&P), which warned Egypt could face another downgrade within six months if political bickering persists.

S&P warned Egypt's credit rating could be cut if factions are "unwilling or unable to compromise sufficiently on political decisions".

Gulf investors remained wary, with no sign yet of economic policy.

"It's still early days for companies who have investments," said Sachin Mohindra, a fund manager at Abu Dhabi's InvestAD.

Many UAE companies in the country, including Emaar Properties, Etisalat and Union National Bank, would have to "wait and watch".

"Given Egypt's state of economic affairs they can't afford to upset international investors," Mr Mohindra said. "They're not going to try to scare investors off, especially from the Gulf."

Attention now turns to a US$3.2 billion (Dh11.75bn) loan from the IMF, intended to shore up Egypt's deteriorating public finances.

While future prospects have improved after the election, the Morsi government is expected to face challenges as it negotiates its powers with the Supreme Council of the Armed Forces and tries to arrive at a consensus on economic reforms.

"While the political transition is delayed, time is not on Egypt's side due to its weak external balance and the low level of [foreign currency] reserves," Bank of America Merrill Lynch analysts wrote in a report.