Things are moving fast in Egypt — especially in equity markets.
The EGX 30 was down 10 per cent on Thursday morning after protesters defied the Mubarak government’s ban on demonstrations. Trading on the North African nation’s stock exchange was even temporarily suspended.
So, time for investors to worry?
Citi is telling Egypt-investors to sit tight:
Our overall conclusion is that while massive economic disruption as a result of political unrest looks rather unlikely, the risk premium that investors require to hold Egyptian assets is likely to remain higher than it was. Therefore, even if the current sell-off does prove to be a buying opportunity, this is unlikely to be realized for some time. The problem for the equity market is that even assuming earnings are unaffected by recent events, Egypt does not look sufficiently cheap within CEEMEA to make for a compelling overweight case at this juncture. However given recent declines, it is probably late to sell aggressively: we would prefer to be neutral in Egypt within CEEMEA.
The longer-term picture here is pretty interesting, however. Citi reckon it’s a truism that stock markets prefer stability to instability, but equities’ actual performance around times of political crises isn’t straightforward at all. Here’s a chart:
Tricky, tricky political crises.
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