Political progress boosts Egypt bourse

A month of peaceful political developments led to cautious optimism in Egypt this January, helping the stock market become the best performing among the world’s leading exchanges so far this year.

The rally has been inspired primarily by political rather than economic events, onlookers say. But after the unprecedented violence of late 2011, when more than 50 protesters died on Cairo’s streets, many say sentiment toward the political transition is rebounding from what may eventually be seen as a long-term low.

“I think we have seen the bottom,” says Wael Ziada, the head of research at EFG-Hermes, the investment bank. “You should never say never, but I think the downside is now minimal, and it is quite unlikely that things could revert.”

The benchmark EGX30 index rose 28 per cent for the month, after falling by almost 50 per cent last year, when the chaos of revolution led to an exodus of foreign capital and tourists, a paralysed government led by a weak and changing cabinet and falling foreign exchange reserves.

While each of these factors remain – “on the economic front there hasn’t been any significant change,” Mr Ziada says – glimmers of good news have been enough to pick the market up from its late-2011 lows.

The anniversary of the revolution on January 25 came and went without significant incidents, despite millions taking to the streets across the country. The parliamentary election was completed and the new assembly convened for the first time. And the ruling army council was reported to be considering plans to accelerate the process of electing a new president.

In each of these cases, it was the absence of bad news that investors took as a positive, says Hisham Tawfik of Cairo-based Arabeya Online securities brokerage.

“We have been far too pessimistic in the last quarter, and markets fell to unprecedented levels, making a bounce back inevitable,” he says. “Even no negative news was enough to make it go up.”

But in the months ahead, Mr Tawfik believes more “fundamental” positive developments will be needed to sustain the January rally.

Signs that the parliament can assert authority, pass laws and form a stable governing majority would be one such development, he says.