What a week it has been for Egypt. All the regional political upheaval happened in Tunisia, half a continent away, but most of the pain has been felt on Cairo’s financial markets. The Egyptian stock market has fallen almost 8 percent and the Egyptian pound is languishing near seven-year lows to the dollar. The cost of insuring exposure to Egyptian debt has risen to 18-month highs.
So are investors preparing for a Tunisia-style popular uprising in Egypt? Or is it that its market, more sophisticated than Tunisia’s, is bearing the brunt of investors’ increasing bearishness on the North African region? Probably a bit of both.
Egypt faces elections later this year and 82-year old Hosni Mubarak, president for almost 30 years, is likely to run again. Just like much of North Africa and the Middle East, inflation, especially food inflation is high while youth unemployment rates are higher than most of the developing world. Risks of uprisings are seen highest in Egypt and Jordan, where there is relatively more political freedom than, say Libya, but leaders lack the oil wealth cushion that the Gulf states or Libya boast. Given Egypt’s “youth bulge” — the proportion of the population comprised of young men aged 15-34 –regime change is a risk, reckons Charles Robertson, chief economist at Renaissance Capital.