Egypt’s Antagonistic Anniversary Antics
Egyptian stocks slid 5 percent on the MSCI index through the first half, despite a successful $1.5 billion external bond issue after a 5-year absence, as former president Morsi was sentenced to death on the anniversary of his removal and Muslim Brotherhood attackers retaliated against security forces. Parliamentary elections have yet to be scheduled as parties battled over proposed rules, and the capital gains tax was postponed this year but may resurface in the next budget. The fiscal deficit will miss the 10 percent of GDP target with reduced Gulf ally assistance and inflation is again in double digits on subsidy slashes and imminent VAT introduction. The central bank has nudged the currency lower to 7.75/dollar but has not eliminated the parallel market as the current account hole worsened to 3 percent of GDP despite 50 percent annual tourism pickup. The capital account surplus was 2 percent as $40 billion in FDI from the Sharm-El-Sheikh conference trickles in, with remittances plugging the residual imbalance. Among Western firms Coke and BP expanded commitments, and the Chinese signed a separate $10 billion medium term project deal during a bilateral trade summit. International reserves are still less than three months imports, and Fitch Ratings recently warned that 4 percent economic growth cannot tackle poverty and unemployment as governance indicators continue to slip, as it maintained a “B” positive outlook reading.
Saudi Arabia was the main positive MENA market, up 9 percent on limited direct foreign investor access, as the IMF’s Article IV consultation added to ambivalence about growth and succession prospects. Sluggish oil prices will cap GDP improvement at 2-3 percent as monetary authority holdings continue to be run down to cover spending, at a $15 billion/month rate in the first quarter. The new King announced bonuses for the army and police as military outlays spike for the Yemen air bombing campaign against rebels. A Cabinet reshuffle has put young royal family members in key economic positions as the old guard continues to rule out rapprochement with Iran in the last stages of global negotiation on a nuclear for sanctions moratorium.
The UAE would benefit most from resumed commerce and finance but it was flat on the MSCI index, as bank listings in particular reported single-digit credit expansion with dwindling deposits. Property activity has also tapered as the ambitious airline has come under international scrutiny for alleged backdoor government subsidies. In Dubai the original troubled debtor DW completed another swap which underscored the problem’s tenacity as asset sales run behind schedule. Qatar as the other core universe component was down 10 percent on the World Cup bribery scandal which may imperil 2022 hosting within a massive $150 billion infrastructure program. Before the revelations the Finance Ministry tightened spending controls and projects such as the Sharq bridge crossing have been delayed. Unrelated cultural and museum plans have been shelved altogether, and the state energy monopoly has shed thousands of workers. Oman joined the fundraising queue with a debut domestic sukuk as Invesco’s annual sovereign wealth fund survey pointed to regional retrenchment with Qatar’s pool now undergoing staff and strategic shakeups.
