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Thu 3 Feb 2011 06:06 PM

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Foreign investors in Egypt await market reopening

Stock market due to reopen on Monday; Egyptian share prices down 21 percent this year

Foreign investors in Egypt await market reopening

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.

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