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March 7, 2011

Emerging Markets in Turmoil: Egypt

Topics: Egypt

(Posted for guest poster Jay Hawk)

Egypt has been the focus of increased media attention due to the fall of the regime of Hosni Mubarak, after 30 years of dictatorship. Mubarak resigned in the wake of intense protests that swept the country in late January, disrupting the Egyptian economy and causing the Egyptian Stock Exchange to close on January 28th, 2011.

Egyptian Stock Exchange May be Removed from MSCI Index

Due in part to the massive protests in Egypt which began on January 26th, the Egyptian Stock Exchange's benchmark index fell 6.1 percent that day, leading to an additional fall of 10.5 percent the next day, on January 27th.

The exchange has remained closed since then and has been put on a watch list by the MSCI Index, formerly known as Morgan Stanley Capital International. MSCI has been keeping a close eye on the exchange since its closure and will continue for a period of 40 business days since the closure to consider further actions.

Sebastien Lieblich, vice president of index research and management at MSCI in Geneva stated in an interview with Reuters, "After that period, if the market is still closed, we will start considering a potential reclassification of the market to a stand-alone status."

While only comprising 0.4 percent of the index, the amount of capitalization that Egypt holds in the MSCI Index exceeds $14 billion. International investors have concerns over these developments since the growth outlook for Egypt was revised downward.

The market forecast for Egyptian GDP has dropped from a forecast of six percent growth made at the end of June, 2010, to a newly revised forecast of 4.3 percent for 2011.

Oil Prices React to Middle Eastern Unrest

Since January 26th, oil prices have reacted to the events in Egypt, and now Libya with volatility. Crude oil prices have gone from trading around the $88 per barrel level before the Egyptian protests, to a high of $103 per barrel on February 24th, after Libya exploded amid protests against strongman Muammar al-Gaddafi.

The price of oil's recent rise will undoubtedly affect the forex market, as well as all of the major economies who are dependent on oil. The results can already be seen, with the commodity currencies -- Canadian, Australian and New Zealand Dollars -- appreciating considerably against the U.S. Dollar, and the European currencies.

Egyptian Pound Soars After Mubarak Resignation

The Egyptian Pound has recovered since the beginning of the turmoil, with the USD/EGP rate trading in the 5.80 -- 5.82 range before the protests and hitting a high of 5.95 at the height of the turmoil. Nevertheless, the rate soon recovered after Mubarak's resignation, and as of this writing was trading at the 5.88 level

The USD/EGP exchange rate is available for online forex trading through a number of online forex brokers and while not as liquid as the majors, it can be traded just as profitably as any other secondary currency pair. Despite the recent chaos in Egypt, the Egyptian economy is still considered a premium emerging market. Note: Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

The fact that the Egyptian Pound was not affected more by the recent unrest is a good indication of the international investment community's vote of confidence in this emerging market. Furthermore, the Egyptian stock market (opened) on Tuesday, March 1st, after being closed for one month.

Posted by Richard at March 7, 2011 6:49 PM

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