International investors reacted to the collapse of Lehman Brothers on 15 September by selling shares wherever they were listed, not least in the Middle East.

However, some of the region’s stock markets had already been in retreat for months before the Lehman Brothers debacle. In most cases, investors had become pessimistic because they could see problems with domestic economies or the valuations of particular sectors.

Nowhere was this more true than in Egypt, where the Cairo & Alexandria Stock Exchange’s Case 30 index of leading companies has lost 42 per cent of its value since its peak on 5 May.

One of the market’s largest investors, EFG-Hermes, which is also the country’s largest investment bank, has cut its largest fund’s exposure to Egyptian equities from 30 per cent of its portfolio to 9 per cent in a matter of months.

It expects lower profit margins at many companies following the government’s decision to remove the tax exemption for companies based in free zones. A decision to reduce energy subsidies for industrial users and consumers has spread further uncertainty.

But stronger markets have also fallen. Saudi Arabia’s Tadawul All Share Index (Tasi) is down 35 per cent so far this year, even though many long-term investors say they remain committed to the market. The companies listed on the Tadawul enjoy better earnings prospects than their rivals in other parts of the region thanks to the buoyant local economy and an enormous programme of infrastructure spending.

Before the Lehman Brothers collapse, foreign institutional investors had been steadily building up their holdings in some markets in the region. When the current hysteria dies down and markets again start pricing themselves on fundamentals, the contrast between the region’s healthy and sickly markets will start to become evident.