Gulf Arab fund managers who only
weeks ago were predicting Egypt would be the top regional
performer in 2011 are now caught in the country's political
upheaval as the local financial markets remain shut.
The main Egyptian share market index has dropped more than
21 percent since the start of the year and financial
markets have now been shut for the last five working days as
protesters demanding an end to President Hosni Mubarak's rule
camp in Cairo's streets,
Fund managers are now hoping they can cut losses once the
market reopens. Egypt's stock exchange is due to reopen on
Monday provided banks are operating smoothly, its chairman was
quoted as saying.
"The markets did not give us a fair chance to exit and we
did not want to add to the panic selling last week," said Nadi
Burgatti, head of asset management at Shuaa Capital, whose
Middle East, North Africa (MENA) fund has an exposure to Egypt.
In last week's panic selling by both international and local
investors, Egyptian stock prices fell 16 percent in two sessions
but asset managers were left with little time to bale out, even
if they had wanted to.
"Most institutions are still sitting on these positions. The
selling was mainly retail driven," said Eric Swats, head of
asset management at Rasmala Investments.
Egyptian stocks make up less than 1 percent of the MSCI
emerging markets index but an off-budget economic
stimulus plan announced in December and prospects for strong
economic growth had boosted share prices in the early weeks of
The index rose 6.5 percent in December and extended gains
into the New Year, hitting an eight-month high on Jan 5.
"We have not been actively selling in Egypt because the
markets are closed. We are positioning our portfolios for
markets to open," Daniel Broby, chief investment officer for
London-based frontier asset manager Silk Invest said.
The asset manager has between 10 percent to 15 percent
exposure in Egypt across its four funds that manage around $150
million in assets.
With the crisis taking a more violent turn as protesters
clash, market operators must be prepared to manage the risk of
another round of panic selling when they re-open.
"There is going to be a gigantic order imbalance when they
(markets) restart. It is not going to be a fair price discovery
when there is order imbalance of that magnitude," Broby said.
But some managers may need to cut their exposure to adapt to
changes in the country's poitical and economic risk profile.
"Definitely more investors will be trying to reduce their
exposure once market reopens to re-rate the risks," said Tariq
Qaqish, fund manager for Dubai-based Al Mal Capital's MENA fund
However, some managers see stock prices as having bottomed
out and expect some buying to resume when markets re-open.
"Historically, political tensions tend to be buying
opportunities," said Swats.
"Its not that Orascom Telecom won't operate
anymore or CIB (Commercial International Bank) won't
be lending. They would be attractive at prices down 20 percent."
Egypt may follow the path of smaller peer Tunisia, which
re-opened its stock market on Monday after a two-week suspension
in the wake of political upheaval that led to the departure of
its longtime president, Silk Invest's Broby said.
Tunisia did not allow continuous trading when the bourse
opened but followed a system where it matched buy and sell
orders in order to avoid panic selling.
"You have price discovery and you have volumes but you don't
have rumour driving the market (under the Tunisia method) and I
suspect Egypt will go the same route," Braby said.
Egypt's stock exchange will cut trading hours to three from
the normal four when it reopens next week, the official state
news agency MENA said on Thursday.
A spokeswoman for Egypt's market regulator was not
immediately available for comment.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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