Panic continues to drag down Cairo and Alexandria stocks

Panic sales of shares by nervous investors dragged the Cairo and Alexandria Stock Exchange down for the sixth consecutive session yesterday. And for the first time, dealers have started to talk about the need for government intervention.

Egypt’s benchmark index sank nearly 5.0 per cent yesterday to its lowest point since September 3 as foreign investors exited the market. The index dropped 4.9 per cent to 7,850.03 points after hitting a low of 7,833.37 points earlier in the session. The CASE 30 index has lost about 34 per cent of its value since peaking on April 22 above 12,000 points.

Though most regional stock market performance has been negative in recent days, the Egyptian market does not normally follow the pattern of the Gulf bourses. Moreover, foreign money is more evident in Egyptian market than in other regional markets.

Internal factors dominate reasons for the share price drop. Analysts and dealers agree that the latest bout of frantic selling, led by a big drop in property companies’ shares, is related to rumours surrounding a leading Egyptian property tycoon whose named was linked to a Lebanese female singer killed in Dubai. But analyst and business editor Saad Hagras said the overall investment environment in Egypt was dealt a sharp blow by the decision to modify a petrochemical project to produce fertilisers by the Canadian company Agrium.

Local protests in the north-delta region of Damieta against anticipated environmental hazards forced the central government in Cairo to relocate the project through a modified agreement with the Canadian partner. This resulted in a deterioration of foreign investors’ confidence in the commitment of the Egyptian government to facilitate their work in the country.

The market decline exacerbates the problems facing the economic reform programme of Prime Minister Ahmad Nazif. On Sunday, official figures showed inflation exceeded 23 per cent last month, forcing the central bank to raise interest rates this week by half a percentage point.

Some economists in Cairo doubt that tightening monetary policy could do much to suppress inflationary pressures. But raising rates might also have helped in constraining investors borrowing to invest in equities.

Egypt’s investment environment has suffered since a bundle of laws were introduced in May this year. “The main issue was the abolition of Industrial Free Zones law for the energy-dependent projects, which led to billions of dollars of foreign investment fleeing the country,” said Hagras. He cited the Kuwaiti Khorafi Group refinery project worth $5 billion (Dh18.3bn) being transferred from Egypt to Sudan or Philippines.

Other projects by GCC investors and local Egyptian businesspersons, are changing destination, depriving the country of much needed foreign investment.