Egypt regulator readies market revival steps

Egypt’s financial market regulator said he was preparing steps to help companies resume raising money in the country’s moribund capital markets, with active issuance of stocks and bonds still likely to be many months away because of political uncertainty.

“There are two factors for the financial markets: the regulations and the political uncertainty. I can influence one but not the other,” Ashraf El Sharkawy, chairman of the Egyptian Financial Supervisory Authority, said in an interview.

The EFSA is close to removing the remaining curbs on stock market trading imposed in February during turmoil surrounding the ouster of president Hosni Mubarak, Sharkawy said late on Monday. It is also readying regulations to make it easier for companies to issue bonds.

But many firms may continue to wait to raise money until the nature of Egypt’s next government becomes clear, added Sharkawy, a former academic appointed just after Mubarak’s ouster.

It could be a long wait.

Although elections to Egypt’s lower house of parliament are drawing to a close and the lower house will hold its first session on Jan. 23, the military generals who took over from Mubarak plan to rule until the end of June, by which time a new president is to be elected.

Key aspects of the new political system, including the balance of power between the presidency and the parliament, have not yet been decided.

Egypt’s Muslim Brotherhood, which is expected to dominate the next government, has said it will respect the financial markets and private business. But with the exact nature of its policies unclear, the prolonged transition to democratic rule has taken a heavy toll on the markets.

Egypt’s main stock index plunged 49 percent last year and is near three-year lows. Daily trading turnover has shrunk to around 200m pounds ($35m), a tenth of levels reached during a boom several years ago.

Many foreign investors have fled Egypt’s markets, though Sharkawy said they still owned about 30 percent of the stock market’s capitalisation of around $50bn, approximately the same proportion as before the political turmoil.

Egyptian corporate bond issuance tumbled to 350m pounds last year from 20bn pounds in 2010, Sharkawy said.

With the economy sluggish and companies’ expansion plans on hold, the weakness of the markets does not matter so much at present because most firms do not need to raise large amounts of money, Sharkawy said. But moribund markets could damage a hoped-for economic recovery later this year.