Egypt exchange plunges on reopening after uprising

The Associated Press
Wednesday, March 23, 2011; 12:11 PM

CAIRO -- Egypt's stock market plummeted almost 9 percent in its first day of trading Wednesday in nearly two months, with foreign investors leading a sell-off that offered a window into concerns about the country's stability after mass protests toppled former President Hosni Mubarak.

The reopening of the Egyptian Exchange - delayed several times - had been viewed with a mixture of trepidation and impatience.

Analysts feared the stock market's prolonged closure would rattle investors already wary of the expected hit Egypt's economy would take following the Jan. 25 uprising. But many Egyptians argued that its reopening would offer a chance for capital flight, especially by former officials and wealthy businessmen under investigation for a corruption allegations.

In the end, the market opened and, about 16 seconds later, it fell hard. Trading was suspended for 30 minutes after the broader EGX100 benchmark hit a 5 percent "circuit-breaker" - a mechanism aimed at halting trading and allowing time for sentiment to cool.

"I was not surprised at all. It's something to be expected give the market was offline for seven weeks," John Sfakianakis, chief economist for the Riyadh, Saudi Arabia-based Banque Saudi-Fransi, said of Wednesday's plunge. "The situation in Egypt has not created confidence among international, and of course local, investors."

The dueling arguments put forward ahead of the market's reopening, however, highlighted difficult crossroads that the government must navigate going forward.

Reflecting the delicate political balancing act the country is undergoing, the Egyptian Exchange's acting chairman Mohammed Abdel-Salam said that shares of 46 companies were suspended from trading. But he also vowed that they would not shut the market down again.

The moves were at least partly linked to the ongoing investigations into former regime officials and businessmen, and Abdel-Salam said those companies had either not responded to requests for full financial disclosures, or had sent incomplete responses about the holdings of the individuals in question.

Analysts and brokers were expecting the market to take a hard hit after a seven-week closure, and their predictions were realized.

The benchmark EGX30 index had fallen over 16 percent in two consecutive trading sessions before the market closed down on Jan. 27, and the day's decline brought it's year to date losses to slightly over 28 percent.

"Everyone was just selling," said Mostafa Abdel-Aziz, a senior broker at the Cairo-based Mideast investment bank Beltone Financial. "The foreigners were selling, the GCC (Gulf Arab) institutions were selling. Local institutions were mostly silent."

He added that a key mistake made by officials was allowing the listing of orders before the market opened, arguing that this undercut buying interest when investors saw a growing list of sell orders.

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