Bourse tumbles in light of fresh violence in Cairo
Renewed protests in Cairo have caused the Egyptian Exchange (EGX) to tumble more than 2 per cent as the country struggles to return to political stability. The EGX30, the bourse’s benchmark index slumped to a eight-month low on 21 November to close at 3,972.17.
The protests started on Friday 18 November and are likely to continue. Police fired canisters of teargas at protesters in images that were reminiscent of the clashes between the police and demonstrators in the January uprisings.
Back then, the Egyptian Exchange tumbled and was forced to close for almost two months to prevent stocks from diminishing. To date, the EGX has lost 45 per cent in value since the beginning of the year.
The new demonstrations took place in Tahrir Square as frustrated Egyptians called for the resignation of the Supreme Council of the Armed Forces and the cabinet, and demanded an end to the military rule that has been in place since Hosni Mubarak’s resignation on 11 February.
Fear that the army wants to hold on to power has spurred on protests, the first of which took place on Friday. Demonstrators called for the cancellation of the supra-constitutional principles proposal, which many believe will undermine parliament and protect the military from scrutiny.
Elections are set to take place on 28 November with the army prepared to hand over power in late 2012-13, but there is a possibility that they may be postponed in light of what has happened.
Investor confidence has been hit hard in Egypt. Many had pinned their hopes on the elections to bring back a sense of stability, but the protests have kept investors further back.
“The elections were the landmark that everyone was focusing on. If it does not go ahead, then it will be a huge blow to Egypt’s economy and its ability to recover and attract foreign capital back,” says Liz Martins, senior economist at UK bank HSBC.
If the elections do go ahead, it will still be a big challenge. There has been no growth in the country, tourism – the bedrock of the economy – has not returned, consumer confidence is still low and the Egyptian Exchange is very exposed to the weakening European markets.
There is little sign of recovery, even as aid flows into Egypt. The finance minister formally applied to the International Monetary Fund (IMF) to accept the $3bn loan he had declined in June. Qatar has given $500m to Egypt and Saudi Arabia has pledged $4bn in aid. It has already paid $1bn, half of which was a grant.
“In normal circumstances, this should have boosted the market, but the stock market is still under huge pressure,” says Martins.
The money pledged by the G8 countries is unlikely to come through as many are struggling with their own budgets.