Egypt shares seen drifting lower

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Egyptian shares are seen continuing their decline next week as investigations of businessmen gain momentum and as the perception spreads that the country’s economic problems will be prolonged.

After a spate of exuberance last month, the bourse’s main index EGX30 on April 7 began a slide triggered by a series of news that further drove home the depth of economic woes caused by Egypt’s political unrest.

These include a $3 billion dip in foreign reserves in March, an increase in annual inflation to an 11-month high and a growing list of businessmen having their assets frozen, all at a time when Egypt’s pound is trading near a six-year low.

Analysts and traders said the bleak news flow could weigh on prices possibly for weeks.

“I believe the stock exchange will see some volatility and more selling pressure over the coming week,” said Mona Mansour, an economist with Cairo-based CI Capital.

Another Cairo-based Egypt analyst said investors were waiting for more data on both companies and on the economy, especially first-quarter balance of payments and economic growth figures for the period at the peak of the crisis that ousted Hosni Mubarak.

The central bank is not expected to release figures until around the end of May.

“We’ll be looking for further news, because obviously the market is waiting for some clarity on the economy,” the analyst said.

“At the moment we’ve only started to get some indications on how the first quarter was going, and we need to get some more information to get some comfort,” he said.

Tourism Minister Mounir Fakhry Abdel Nour said last week that tourism, crippled by political turmoil, would not get back on track until September.

Tourism revenue fell by 60% in March from the previous year and would drop 25% in the whole of 2011, he said.

The Egyptian pound, which has lost about 2,5% of its value since the political unrest broke out on January 25, is expected to continue its gradual weakening in the absence of demand for the currency by tourists or by investors buying Egyptian treasury bills.

The foreign investors who were keen buyers of treasury bills have all but abandoned the market during the crisis.

“It’s all local markets, as there’s no international demand,” a London-based trader said.

Analysts said concerns that the Arab world’s political unrest might hurt Gulf economies had subsided, in part because higher oil prices have provided a cash bonanza that governments can use to keep their citizens relatively content.

“Risk premiums have been taken off the table completely. We’ve recovered all of the losses we made when people started worrying about Saudi Arabia,” a Riyadh-based analyst said.

“That shows that there is no fear whatsoever from Bahrain, Syria or Libya. If anything, Libya’s situation creates upward pressure on oil which benefits petrochems.”

On Tuesday, Dubai’s index hit an eight-week high on optimism United Arab Emirates (UAE) bourses might gain emerging market status, a move analysts said could open up the country’s bourses to multi-billion dollars of liquidity and drive index fund investments.

The UAE regulator said on Monday the bourses would launch a new settlement system on April 28 that was a key step toward entrance into gaining MSCI status.

MSCI will announce in June whether it will upgrade the UAE as well as Qatar from the category of “frontier markets,” although some analysts warned the two countries still had some hurdles to overcome.

“UAE and Qatar’s inclusion in the MCSI index is not as imminent as people think. The payment delivery has been sorted out, but there are still a few points left,” said a trader.

He said MSCI rules did not allow the dual account structure that the UAE maintained between foreigners and locals.— Reuters