Egypt’s Reconstructed Edifice Eddies
Egyptian shares continued their domestic and Gulf investor-driven rally despite a tourist terror attack, as the interim government resigned in favor of caretakers led by a construction magnate from the Mubarak era and General Al-Sisi positioned for a presidential run. A second $4.5 billion stimulus package was launched around UAE-backed projects diverting attention from worsening power shortages as net international reserves of $17 billion in January sustained the 7 pound-dollar level. On the Cairo exchange double-digit p/e ratios are above the emerging market but in line with the imminent core addition Emirates and Qatar norm, as local allocation also shifts from declining Treasury yields with the latest one-year dollar issue under 2.5 percent. However according to a Moody’s report banks that loaded up on government securities still face sovereign risks, even with the ample retail deposit base supported by remittances. With the Middle East aid and fuel shipments reserve coverage should stay at the critical three months’ imports, and the future course of the Morsi trial and political contests could pave the way for resumed IMF and Western debt relief discussions. Foreign portfolio investors seek exposure for regional diversification but remain stymied by exchange controls despite recent central bank relaxation. With MSCI’s frontier-main universe switches Kuwait will account for almost one-third of the former, although performance remains lackluster as the parliament and cabinet continue to battle over spending and sovereign wealth fund management. A big water project was approved late in 2013 and bank earnings have started to recover from family group defaults and restructurings. Alone among the GCC, it has a multi-currency peg which has strengthened recently as the debate over a common monetary area has been sidelined by the Eurozone crisis and dollar’s rediscovery as the global anchor. In battling the Muslim Brotherhood, Egypt’s resurrected military regime has raised the specter of neighboring Algeria’s civil war, but critics point to tenuous historic parallels and the subsequent stagnation of political life since rebels there were defeated. President Bouteflika announced his candidacy for a fourth term in April despite stroke incapacitation, as non-oil GDP growth runs at 5 percent on infrastructure building.
Dubai has been the area darling with an almost triple digit annual equity gain as $20 billion due from the 2009 central government rescue was rolled over and planned asset sales were otherwise set to meet repayments. In the Arab Spring venues state-linked Dubai Holding may shed a 35 percent stake in Tunisie Telecom and private retail chain MAF unveiled a $2 billion mall blueprint on the Cairo outskirts. Saudi shares have been up on renewed liberalization talk, as the smaller exchanges graduate to MSCI’s top tier and authorities develop bond markets to redirect the external sukuk push. The King pledged another $4 billion in near-term assistance for Egypt’s transition despite deporting expatriate workers to scale down youth unemployment.
