Husni Mubarak is gone and the mass protests at Tahrir Square are mostly history, but Egypt’s stock exchange remains closed – its trading floors empty and two tanks stationed outside its Cairo headquarters, serving as an all too conspicuous symbol of the country’s struggle to get back to business.
Officials have hinted repeatedly over the last few weeks that the market will open soon, most recently on Monday when Bloomberg News quoted exchange spokesman Hisham Turk and Cabinet spokesman Magdy Raby as saying an announcement would come by the evening. As of late Tuesday, no announcement had been made and Turk was unavailable for comment.
“It’s an institution that is very public and visible. For it to be closed isn’t a positive sign. That’s why the opening of the stock market will be important. It provides a sense that the situation is returning to normal,” Angus Blair, head of research at the Cairo-based investment bank Beltone Financial, told The Media Line.
The Egyptian Exchange was shut Jan. 27 as confrontations between the government and protestors unnerved investors and sent shares plummeting 17% in two trading sessions. But the army-led transitional government has since brought order to the country and economic activity has resumed.
Although the decision when to open and under what conditions is up to exchange officials, analysts say the government fears that resuming trading would give people a conduit for sending capital the country badly needs overseas. It could also send a bearish message about the economy if shares tumble in initial trading.
The authorities have taken some measures to address those issues. As of March 14, Egypt’s attorney-general has temporarily barred 52 people plus immediate family members in many cases, from trading shares. The list includes the Mubarak family, as well as top business people and former ministers.
To address concerns about a massive sell-off, Egypt’s Financial Service Supervisory Authority last Saturday eased rules for margin trading, the practice of buying securities with cash borrowed from a broker and using other securities as collateral. Investors now need only repay loans or add collateral when their debt reaches 70 percent of the shares’ value. That is 10 percentage points higher than previously.
To help small investors, who have been the most nervous about the fall-out of the exchange’s re-opening, a fund worth 250 million Egyptian pounds ($42 million) was formed on Sunday to offer them loans.
“We are getting close to a reopening in the sense that we are trying to ensure sufficient demand so that when the stock exchange opens there won’t be a strong crash. We expect a landing, but we want it to be a soft landing,” Egyptian Finance Minister Samir Radwan told the CNBC business television network on Monday. “I hope by mid week we will be functioning.”
Egypt lost several weeks worth of output during the peak of the unrest. Even today, strikes are frequent and two key sources of foreign income – tourism and the salaries of Egyptians working abroad – remain problem areas. Tourists are trickling back slowly, as travel to the Middle East suffers from unrest in places like Libya and Bahrain. Meanwhile, hundreds of thousands of Egyptians have fled Libya, depriving their families of income.
Radwan said last week that gross domestic product may grow as little as 3 percent in the year to the end of June if production does not get back on track. The economy grew by 5.1 percent in the 2009/10 financial year.
Meanwhile, stock markets across the Middle East have dropped in response to regional unrest. Globally, investors have been pulling out of emerging stock markets like Egypt’s. As of March 9, emerging-markets equity funds have suffered net withdrawals of more than $21 billion this year.
But there is some room for optimism. Shares of leading Egyptian stocks traded abroad in the form of global depository receipts have fallen since the exchange was shuttered, but they haven’t tanked. Orascom Construction Industries has shed 4.8 percent, Orascom Telecom 2.4 percent, EFG-Hermes 13.2 percent and Telecom Egypt 12.2 percent. “It’s not as bad as one would think,” said Beltone’s Blair.
Last Thursday, ratings agency Standard & Poor’s said it removed Egypt’s long-term foreign currency ratings from CreditWatch negative and affirmed its ratings of the country’s unsecured foreign currency sovereign debt.
Whether or not investors will look at the Egyptian cup as half full or half empty, the stock exchange faces something of a deadline from MSCI, whose securities index are used by global investors to benchmark their performance and decide how to apportion their investments.
Under MSCI rules, a market can’t be closed for more than 40 trading days, or it risks being expelled from the index. Frank Nielsen, MSCI’s executive director for equity and applied research, said this deadline was March 24. Expulsion would cause big institutions to divest their Egyptian stocks, although Nielsen declined to speculate on what the impact would be.
“What we are doing right now is talking to investors and other interested parties in Egypt and the rest of the world to get a sense of what investors feel about it, and what the plans are in Egypt,” Nielsen said in an interview on the Index Universe website. “Surely there will be an impact if we ultimately deleted Egypt from the Emerging Markets Index.”