LONDON: Cairo financial markets, reopening from a prolonged closure and a steep selloff, cannot look forward to much support from overseas portfolio managers who want more clarity on Egypt’s economic and corporate outlook before venturing back to the country’s newly-cheap securities.
Seven out of ten fund managers interviewed by Reuters for this article said they will not buy Egyptian securities just yet despite steep falls that have brought stock valuations to among the most attractive levels in the emerging market asset class.
The assets are cheap for a reason, most investors argue.
With Cairo and much of Egypt roiled in political tension and protesters demanding an immediate end to President Hosni Mubarak’s 30-year rule, the country has ground to a standstill.
Economic growth and investment projects in North Africa’s biggest economy will almost certainly take a hit. And as turmoil also engulfs neighboring states, there are big question marks on how investor-friendly future government policy will be.
"Valuations look attractive if you are a short-term trader. But we are long-term investors and need to look ahead and see how all this will impact companies’ results, their cash flow generation and financing needs," said Dilek Capanoglu, CIO, emerging equities at Allianz RCM in Frankfurt.
"You need to assess the danger to the overall economy, which has come to a standstill over the past two weeks."
Egyptian shares fell 21 percent in January, after rising 15 percent last year and 35 percent in 2009.
Yields on its $1 billion (621 million pounds) global bond maturing 2020 rose over 100 basis points. And debt insurance costs have jumped. It now costs $400,000 to insure exposure to $10 million of Egyptian debt, $150,000 more than at the start of 2011.
The mood now, almost two weeks into the mass demonstrations, is far worse than at the start of the week when hopes had grown for a peaceful and speedy transition of power.
That tempted some foreign investors to buy offshore-listed assets, pushing up London-listed global depositary receipts (GDRs) issued by Egyptian firms and an Egypt exchange traded fund listed on the New York stock exchange.
But since then, violence has broken out. Gains in the GDRs and ETF have stalled though they are well off recent troughs.
"A few days ago I was positive, now I am reassessing that," said Sven Richter, head of frontier markets at Renaissance Asset Managers, which has a big underweight on Egypt.
Egypt’s finance minister offered little comfort, admitting economic loses from the unrest were "huge."
