A jittery upward swing characterised the market after Mohamed Mursi's presidential win, though many are still playing wait and see, Sherine Abdel-Razek
The euphoria that swept Cairo's streets after the announcement Sunday of Mohamed Mursi's win in Egypt's presidential race was transferred to the trading floor at the Egyptian stock exchange in the days that followed.
Not only did market indices exceed their daily permitted surges, but also the main index recorded its fourth ever intra-day jump Monday. The upward trend in fact started a few hours before the announcement on Sunday, spurred by prospects of stability, and lasted for the rest of the week.
The overall gains in the market this week, until the end of Wednesday transactions, exceeded 10 per cent, pushing the year's gains in the market to date to more than 30 per cent.
This leap forward came after the stock market fell 10 per cent during the two-stage elections, on fears the poll could be derailed or marred by violence. But voting and the announcement of Mursi's win against Ahmed Shafik, ousted leader Hosni Mubarak's last prime minister, passed off peacefully.
Egypt's debtors seem also to be optimistic about the elections result. Dollar bonds rose in the hours following the announcement, sending the yield on notes due in 2020 down the lowest since the early days of last year's uprising, meaning the risk on the bonds decreased, thus the yield asked by its holders eased.
The yield on 5.75 per cent notes tumbled 0.54 per cent, the biggest drop on a closing basis since February 2011. This came after a jump last week -- in anticipation of the elections results -- of 0.9 per cent, the most since the debt was sold in April 2010.
Moreover, the country's five-year credit default swaps, reflecting the cost to insure government debt for that period, also headed south.
However, experts doubt the sustainability of this performance and link it to positive outcomes on the political front. "If we see a diversified, highly respected and qualified Cabinet being formed, the relief rally we're likely to see may turn into a firm one," Wael Ziada, head of research at Cairo-based EFG-Hermes Holding, told Bloomberg.
"There are still a lot of unknowns for the market, which will be looking for direction from the street, the presidency and progress by the constitutional drafting committee."
The American financial house Citigroup was more cautious. The group said in a report published by The Financial Times Tuesday that Mursi's victory averted an escalation of unrest but, "the avoidance of an escalation in near-term unrest does not amount to economic and political stability going forward. Egypt's immediate future remains fraught with uncertainty and challenges, and we would caution against any undue optimism on the part of investors in Egyptian risk assets."
So, a wait and see mood seems to be prevailing, a fact highlighted by the International Monetary Fund's (IMF) reaction. The fund, which has been putting on hold a much needed $3.2 billion loan, issued Monday a statement saying that Egypt faces significant immediate economic challenges, especially the need to restart growth and address fiscal and external imbalances.
"The IMF stands ready to support Egypt in dealing with these challenges and looks forward to working closely with the [Egyptian] authorities."
The IMF has made any loan conditional on a credible programme to get the country's finances under control, that the said programme has broad domestic political support, and that Egypt line up additional financing from foreign donors.
Egypt's 2011 uprising hammered the economy by chasing away tourists and foreign investors and prompting government employees to strike for higher wages. The economy contracted by 4.3 per cent in the first quarter of 2011 and stagnated in the following three quarters.
The IMF loan could be Egypt's exit from a ballooning deficit and the escalating cost of borrowing from both inside and outside the country, especially after a series of downgrades to its creditworthiness by rating agencies.
On Monday, the American rating agency Standard & Poor's placed Egypt's long-term sovereign ratings on CreditWatch negative. "We now believe that a protracted, and possibly volatile, transition from the authoritarian regime deposed in January 2011 is more likely," the S&P statement said.
The negative CreditWatch placement means the long-term ratings over the next three months might be reduced.
"We think Egypt's main political factions are unwilling or unable to compromise sufficiently on political decisions that would reduce pressures on fiscal and external indicators," S&P said.
Such fears have been reflecting on the Egyptian pound, which declined to its lowest level in more than seven years to reach LE6.0414 to the dollar Tuesday.