Egypt: Are Investors Discounting the “Tunisia Factor”? « Alpha Dinar

After the disruption in Tunisia, Cairo’s financial market felt most of the pain. The Egyptian stock market fell by almost 8% and the cost of insuring against the Egyptian debt has gone to its 18 months highs. Also, the Egyptian pound fell to its seven year lows against the US Dollar.
Are investors pricing in a political risk, whereby Egypt will have the same fate as Tunisia?
Major houses and international investors have been hot on Egypt for a while, mostly because of its demographics and accessibility. A study done by Barclays Capital estimates that foreign investors own 15% of stock market cap and 20% of the outstanding bonds, investing around USD25 billion. Although this indicates that Egypt’s market is attractive, it also creates a potential risk that investors might take their money away thus creating massive selling.
“If alarm bells start ringing in Egypt, there’s potential for quite a lot of money to come out.” said Oliver Bell, senior investment officer at Pictet which has gone underweight Egyptian stocks.

Elections are coming soon and Hosni Mobarak, president for the past 30 years, will probably run again. Also, Egypt is facing high food inflation and high youth unemployment. Adding on the already existing political unrest and the events that happened in Tunisia, this will surly trigger a political risk.