Anger is building on the streets of Cairo as uncertainty reins. It’s the same mood in the markets. The cost of insuring against Egyptian default spiked on Friday while equities around the world reflected disappointment overHosni Mubarak’s Thursday night speech. Investors are gripped by events. Beyondbrics has just spoken to Mohamed El-Erian, chief executive of Pimco, about what’s happening.
El-Erian, who is himself of Egyptian origin, said as he left London after a tour of the Middle East: “There is a huge question mark over what happens next… People have great difficulty in pricing in the systemic effect of Egypt.”
Egypt, he says, gives investors none of their customary clues:
Markets are comfortable pricing the systemic impacts of one or more of three things: a large economy, which Egypt isn’t; an economy that controls a commodity price, which Egypt doesn’t; or an economy that owes a lot of money to somebody, which Egypt doesn’t.
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