Egypt’s Brazen Broken Circuits
After numerous postponements, and just before the 40 business day deadline that may have warranted MSCI core index expulsion, Egypt’s post-Mubarak stock exchange reopened with automatic circuit breakers imposed with daily 10 percent falls. The hiatus was the longest close since Pakistan’s in the aftermath of the Lehman Brothers bankruptcy, when it set an arbitrary price floor that led to demotion to the frontier tier and later had to be removed as a condition for IMF concessional lending. The bourse during the almost 2-month period also scrambled to put in place protections for local retail investors who had borrowed heavily on margin from banks and brokers before the unrest-related 20 percent plunge. A small support fund was established and the rules for triggering calls when share values meet a specific credit portion were relaxed. Domestic and foreign institutional players backed the measures, but maintained they could have been adopted with active trading. They also questioned the application of ambiguous new disclosure requirements on listed companies in an effort to determine past ties with the Mubarak regime that could spur prosecution and reputational damage. Big listings owned by the Ezz family and other longstanding allies are already under investigation and dozens of firms were suspended for initial failure to comply. Criminal charges have extended to the former Finance and Trade ministers who have sought safety abroad and championed capital market opening and modernization. The exchange head had come under relentless criticism for erratic decision-making and constant delays and was replaced by the interim government on the eve of re-launch, when a referendum on election and constitutional change timetables also won overwhelming approval. Parliamentary polls in September will precede a presidential one by year-end, with the previous ruling NDP and Muslim Brotherhood parties said to be at an advantage as veteran political groups.
Although the GDRs of Orascom continued to be battered since mid-January, a successful asset sale by the majority owner Sawiris clan to Russia’s Vimpelcom was a piece of good company news as low double-digit valuations drew bargain hunters. Commercial International Bank was also ravaged as only domestic buyers are left for Treasury paper, which is already a high portion of assets, after foreigners reportedly liquidated their $10 billion position, which had represented almost one-quarter of the outstanding total. The auction calendar has been improvised as yields reach 12 percent, with the budget deficit estimated to breach 10 percent of GDP on additional spending and output losses over the preliminary transition phase. The current account could run a deficit on slumping tourism as discussions are underway with the IMF on at least $5 billion in budget and balance of payments aid, according to analysts continuing to chart a circuitous recovery route.
