Egypt: still a long road ahead

November 29, 2011

As Egypt goes to the polls for a second day, most international investors remain reluctant to enter its markets until there are clearer signs of political stability.

Egyptian stocks bounced today but are still at weaker levels than shortly after the ousting of Hosni Mubarak in February, and debt insurance costs are higher.

Foreigners have withdrawn from the local T-bill market,  the pound is at its lowest in nearly seven years and foreign exchange reserves are deteriorating at a worrying rate.

It looks like it will be a while before there is greater clarity. On the positive side, little violence was reported on the first day of the vote, in the first two-day phase of three rounds of polling for the lower house. That is in contrast to clashes  last week in which 42 people were killed.

Individual winners are to be announced tomorrow, but many contests will go to a run-off vote next Monday. List results will not be declared until after the election ends on Jan 11.

Added to that, the presidential vote is not expected until June, and even that is much sooner than previously thought.

It’s hard to plan for political risk, says Raj Morjaria, partner at private equity firm Aureos Capital.

Political risk is in the category of the bucket which you cannot manage.  You cannot manage a dictator, or exchange rates. But you can manage how you structure your deal, how you are diversifying, across sectors, across countries.

Morjaria is looking at investing in Egypt, but possibly not for a couple of years.

Emad Mostaque, MENA (Middle East and North Africa) strategist at Religare Capital Markets, remains more upbeat.

In a note chirpily entitled, “I still like Egypt”, Mostaque writes that he added greater Egypt exposure to the bank’s model portfolio last week,with the election schedules among factors in Egypt’s favour. But even he says:

Investors are unlikely to rush back until they see progress over the next few weeks in safe elections.




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