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Friday, 4 February 2011

Egypt: From the Investors Perspective

A Recent article in the FT shed some light on the Economic situation in Egypt and how it differentiates itself from Tunisia

Firstly the columnist highlighted that high inflation and food prices have put severe stain on governments across the Middle Eastern region. Wheat prices in particular have played a major part given severe supply constraints that have resulted from droughts and unusual weather cycles across the global, notably in India, Australia and Russia. Egypt, is highly exposed to the prices of wheat given that they are the worlds largest importer of the commodity, which has added further fuel to the protesters as prices continue to surge.

Additionally with rumours that Hosni Mubarak's son is to take the reins of power when he steps down smacks of the same nepotism that resulted in the downfall of the Tunisian president Zine al-Abidine Ben Ali. This has led commentators to believe that there is a contagion affect spreading across the region given the similarities of their political and governmental structures.

Fueling the citizens of Egypt's anger still further is that the country has been experiencing between 4.5% and 7% GDP growth since 2005 and has seen substantial capital inflows. However the population has seen very little effect of this growth given the high youth unemployment and low standards of living.

Investors initially ran for the exits by pulling substantial amounts of capital out the Egyptian stock market by selling their positions in Egyptian stocks, however this sell off already appears to be overdone as investors have already sought to capitalise on the situation to buy stocks at beaten down valuations. (see chart below - which is ETF traded on the NYSE, which tracks a basket of Egyptian stocks)

EGPT top 10 Portfolio Holdings can be found here

Fadi al-Said at ING In-vestment management in Dubai says the situation in Algeria is in contrast to that in Egypt. Highlighting "the reformist mood in region would have been boosted by the Jasmin revolution, but it is more likely to brought about by a gradual transition to democracy, rather than repeats of violent spasms that ousted Ben Ali 

Zin Bekkali, chief executive at Silk Invest says "longer term, I think this is part of the growing up and the maturing of these countries". He goes on to say that the countries have a level of economic development that is not at a par with the maturity of their political systems, which is a good and bad thing. The bad thing being that this will inevitable "create friction between the two". "The good thing is that are economically developed which should allow then enough stability to get through this situation". 

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