Egypt stock market reopens, plummets by nearly 9 percent

March 24, 2011|By Tarek El-Tablawy, Associated Press

Egypts stock market reopened yesterday after a two-month closure. A sell-off… (Nasser Nasser/Associated…)

CAIRO — Egypt’s stock market plummeted almost 9 percent yesterday in its first day of trading in nearly two months, with foreign investors leading a sell-off that offered a window into concerns about the country’s stability after mass protests toppled the former president, Hosni Mubarak.

The reopening of the Egyptian Exchange — delayed several times — had been viewed with a mixture of trepidation and impatience.

Analysts feared the stock market’s prolonged closure would rattle investors already wary of the expected hit Egypt’s economy would take following the Jan. 25 uprising. But many Egyptians argued that its reopening would offer a chance for capital flight, especially by former officials and wealthy businessmen under investigation for a corruption allegations.

In the end, the market opened and, about 16 seconds later, it fell hard. Trading was suspended for 30 minutes after the broader EGX100 benchmark hit a 5 percent “circuit-breaker’’ — a mechanism aimed at halting trading and allowing time for sentiment to cool.

“I was not surprised at all. It’s something to be expected given the market was offline for seven weeks,’’ said John Sfakianakis, chief economist for the Riyadh, Saudi Arabia-based Banque Saudi-Fransi. “The situation in Egypt has not created confidence among international, and of course local, investors.’’

The dueling arguments put forward ahead of the market’s reopening, however, highlighted difficult crossroads that the government must navigate going forward.

Reflecting the delicate political balancing act the country is undergoing, the Egyptian Exchange’s acting chairman Mohammed Abdel-Salam said that shares of 46 companies were suspended from trading. But he also vowed that they would not shut the market down again.

The moves were at least partly linked to the ongoing investigations into former regime officials and businessmen, and Abdel-Salam said those companies had either not responded to requests for full financial disclosures, or had sent incomplete responses about the holdings of the individuals in question.

Analysts and brokers were expecting the market to take a hard hit after a seven-week closure, and their predictions were realized.

The benchmark EGX30 index had fallen over 16 percent in two consecutive trading sessions before the market closed down on Jan. 27, and the day’s decline brought its year-to-date losses to slightly over 28 percent.

“Everyone was just selling,’’ said Mostafa Abdel-Aziz, a senior broker at the Cairo-based Mideast investment bank Beltone Financial. “The foreigners were selling, the GCC [Gulf Arab] institutions were selling. Local institutions were mostly silent.’’

Ahead of the market’s reopening, officials enacted a host of measures aimed at preventing a collapse and shoring up confidence. Trading was to be suspended if the EGX100 hit 5 percent and frozen at current levels for the session’s duration if it shifted 10 percent. The government called on Egyptians to invest in the market and repeatedly said the country’s economic fundamentals were sound.