Egypt stocks battered on Cairo unrest

AP News
Posted: Oct 10, 2011 9:02 AM
Egypt stocks battered on Cairo unrest

Egypt's benchmark stock index pared steep losses on Monday after plummeting over 5 percent, as overnight clashes unseen since the revolution that ousted former President Hosni Mubarak sent investors into a panic.

The Egyptian Exchange's EGX30 index closed down 2.28 percent, at 3,936 points, according to the exchange's Web site, rebounding from a more than 5.1 percent plunge that occurred within minutes of the start of trade.

The drop was fueled by violent clashes late Sunday night between minority Coptic Christians, majority Muslims and security forces _ an eruption of the sectarian tensions that traders feared presented the country with its gravest challenges yet since the revolution.

"There was already a sense of panic and, after last night's events, we expect declines today, tomorrow and going forward for a while," said Khaled Naga, a senior broker with Mega Investments. "Things are lousy."

"This is the most dangerous situation that has happened since the revolution," said Naga, referring to the sectarian violence. "Everyone (in the market) is thinking like this."

The unrest comes at a critical time for Egypt as the country's military rulers are increasingly under fire for what critics maintain is moving too slowly with promised reforms and elections that will lead to an elected, civilian government.

The declines pushed the index's year-to-date losses to almost 45 percent and offered a window into the battering Egypt's economy has sustained since the start of the Jan. 25 revolution.

The current government is struggling to balance mounting domestic pressure for higher salaries and increased social spending and the burden of subsidies on key good which is afforded the majority of the Egypt's roughly 85 million residents.

The country _ the Arab world's most populous _ has seen economic growth contract sharply since the start of the uprising, with key foreign revenue sources like tourism and foreign direct investment hit particularly hard.

Further unsettling investors and wreaking havoc with revenues are near daily protests and strikes, most recently involving air traffic controllers at Cairo's international airport. The labor minister recently warned that such labor movements, which are driven by demands for higher pay, are bankrupting the country.

The government has already heavily tapped its foreign reserves, which have dropped over 33 percent since December partly to support the Egyptian pound.

The slide in foreign reserves _ to $25 billion in late September _ could force the interim government to accept International Monetary Fund loans that it had turned down just months, especially as only about $500 million of the roughly $7 billion pledged by the oil rich Gulf Arab states has materialized.

Egyptian officials had initially rejected an IMF loan that carried a 1.5 percent interest rate, arguing they did not want to saddle any incoming government with additional debts. But the sudden-about face, shortly after the initial agreement was announced over the summer, was widely seen as a reaction to public pressure against the loan.

But with fiscal pressures mounting on the country as a result of the unrest and its impact on key sectors like tourism, analysts believe Egypt has little choice but to accept the funding, even if that adds political pressure on the current administration from activists leery of the strings IMF loans often carry.

"In the absence of IMF support, Egypt's foreign exchange reserves could be sufficient to cover just three months worth of imports (the minimum required level of cover) by the third quarter of 2012," said London-based Capital Economics in a research note issued last Thursday. "What's more, the global economic problems suggest that foreign exchange earnings could fall further next year, making matters worse."