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Tuesday, 22 March 2011

Trading to Resume in Egypt on Wednesday After Lengthy Closure

Nearly two months after the Egyptian stock exchange closed, due to rising political unrest, trading is set to resume on Wednesday.  However, reports from have said that one of the consequences of the prolonged closure could be spikes in volatility as investors seek to weigh the risks of two months of political upheaval not only in Egypt but throughout MENA.

A statement issued by the Egyptian PM Essam Sharaf said that market will open for the first time since January 27th, calling on investors to "positively contribute" when the exchange in scheduled to open in several hours.

The Egyptian bourse has been scheduled to open on several occasions in the last few couple of weeks. However with the recent successful election held over the weekend voting in favour of proposed constitutional amendments, it is felt now is the appropriate time to finally reopen the stock market.

One Credit Suisse analyst has been quoted as saying "we expect high volatility in the short term when the market reopens".

There have been several reasons why the market has remained closed for this extended period: - 

  1. the overthrow of former President Hosni Mubarak
  2. then in early March Sharaf became the Egyptian PM, replacing Ahmed Shafiq who was appointed by the by Mubarak.
  3. also decrees prohibiting the flow of funds that were controlled by Hosni Mubarak have been cited as another potential reason for the lengthy closure.
Perhaps the main underlying concern and the primary reason why the markets have reopened sooner is because of the sizeable amount, (approx. 60%) that the domestic retail investors has tied up in the Egyptian stock market. Many of these retail investors have already suffered significant losses prior to the closure of the market.

As an example of how other emerging markets have coped with lengthy stock market closure, one needs to looks at Thailand during its political crisis during 2006-2008. However analysts believe that Egypt's significant exposure to high commodity costs, specifically food prices will also have a negative impact on the market when it reopens.

The government has taken steps to try and reduce the overall volatility that will likely engulf the market once it reopens: - 
  1. a shorter trading day for the first week
  2. an automatic trading suspension if the market falls 5% or 10% within the same trading day
  3. and a 250m Egyptian pound (£26m / $42m) government fund that can be invested in the market. 

Track the movement of the Egyptian Stock Market Here

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