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Foreign investors in Egypt await market reopening

Egyptian share prices down 21 percent this year.

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February 3, 2011 3:58 by



Gulf Arab fund managers who only weeks ago were predicting Egypt would be the top regional performer in 2011 are now caught in the country’s political upheaval as the local financial markets remain shut. The main Egyptian share market index has dropped more than 21 percent  since the start of the year and financial markets have now been shut for the last five working days as protesters demanding an end to President Hosni Mubarak’s rule camp in Cairo’s streets,

Fund managers are now hoping they can cut losses once the market reopens. Egypt’s stock exchange is due to reopen on Monday provided banks are operating smoothly, its chairman was quoted as saying.

“The markets did not give us a fair chance to exit and we did not want to add to the panic selling last week,” said Nadi Burgatti, head of asset management at Shuaa Capital, whose Middle East, North Africa (MENA) fund has an exposure to Egypt.

In last week’s panic selling by both international and local investors, Egyptian stock prices fell 16 percent in two sessions but asset managers were left with little time to bale out, even if they had wanted to.

“Most institutions are still sitting on these positions. The selling was mainly retail driven,” said Eric Swats, head of asset management at Rasmala Investments.

Egyptian stocks make up less than 1 percent of the MSCI emerging markets index  but an off-budget economic stimulus plan announced in December and prospects for strong economic growth had boosted share prices in the early weeks of January.

The index rose 6.5 percent in December and extended gains into the New Year, hitting an eight-month high on Jan 5.

“We have not been actively selling in Egypt because the markets are closed. We are positioning our portfolios for markets to open,” Daniel Broby, chief investment officer for London-based frontier asset manager Silk Invest said.

The asset manager has between 10 percent to 15 percent exposure in Egypt across its four funds that manage around $150 million in assets.

MANAGING PANIC

With the crisis taking a more violent turn as protesters clash, market operators must be prepared to manage the risk of another round of panic selling when they re-open.

“There is going to be a gigantic order imbalance when they (markets) restart. It is not going to be a fair price discovery when there is order imbalance of that magnitude,” Broby said.

But some managers may need to cut their exposure to adapt to changes in the country’s poitical and economic risk profile.

“Definitely more investors will be trying to reduce their exposure once market reopens to re-rate the risks,” said Tariq Qaqish, fund manager for Dubai-based Al Mal Capital’s MENA fund said.

However, some managers see stock prices as having bottomed out and expect some buying to resume when markets re-open.

“Historically, political tensions tend to be buying opportunities,” said Swats.

“Its not that Orascom Telecom  won’t operate anymore or CIB (Commercial International Bank)  won’t be lending. They would be attractive at prices down 20 percent.”

Egypt may follow the path of smaller peer Tunisia, which re-opened its stock market on Monday after a two-week suspension in the wake of political upheaval that led to the departure of its longtime president, Silk Invest’s Broby said.

Tunisia did not allow continuous trading when the bourse opened but followed a system where it matched buy and sell orders in order to avoid panic selling.

“You have price discovery and you have volumes but you don’t have rumour driving the market (under the Tunisia method) and I suspect Egypt will go the same route,” Braby said.

Egypt’s stock exchange will cut trading hours to three from the normal four when it reopens next week, the official state news agency MENA said on Thursday.

A spokeswoman for Egypt’s market regulator was not immediately available for comment.

(Editing by Greg Mahlich)



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