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Sunday, May 28, 2006

My Stock Tip

Moved on! Check TheCairoCalls

Markets are fascinating things. Barring any fraud or anti-competitive factors, they provide an almost instant indicator of the overall mood, and sentiment in the whole society.
Current Egyptian stock market recommendation: Strong Sell!
You got the point!
The stock market is very sensitive to lots of factors. That's why I've been pondering the relation between the recent dive of the stock market and the current political situation in Egypt. I figured it all make sense.
According to this BusinessWeek article, the numerical indicators of the economy are good (6% annual growth; $3.2 billion in DFIs), but the CASE-30 (major stock index) continues to underperform. It lost around 25% in 3 months!
In my opinion this has mainly to do with the very volatile political situation. Now, I'm not saying that this turmoil is a result of pro-democracy movements (regardless how admirable they're) but it has mainly to do with the fact that sooner or later (and most probably sooner) Egypt will inevitably has to deal with a major power vacuum (actually the only power vacuum that counts in this country). Mubarak is aging, and is expected to soon either be a former (and be the first), or a later president (some are even wondering whether he is the current!), and although speculations about Gamal Mubarak succeeding him are very strong, it is very hard to imagine how will this be achieved if Mubarak Sr. died before handing the presidency to his son. Many parties can potentially have eyes for the big job (Army, NDP old guard, etc..), and Gamal, although moving tactfully to form a strong base for himself (ministers, editors-in-chef, NDP youth) will pale when compared with the political clout those other parties can muster.
Also the conflict with the judiciary can prove very harmful to investor confidence. For investors (foreign ones especially) news that "judges are not independent in Egypt", automatically means that "investments are not safe in Egypt". Because how attractive investment laws are here, the absence (or even the perceived absence) of strong, independent judges to enforce it, mean that these laws are worthless.
The article summarizes:
While economic reforms are proceeding fairly smoothly, the political convoy seems to have hit a roadblock -- a point underlined by recent police beatings in central Cairo of demonstrators demanding independence for the judiciary. Mubarak, who will mark a quarter century in power in October, will eventually die or become too old to rule. But just who will succeed him is far from clear. "It's the million dollar question, " says Orascom Telecom's Sawiris.

Back to the stock exchange. I guess it will take something in the vicinity of 2-3 years for the stock change to rebound. This is the time frame during which, I think, a transfer of power will happen.
Till then, hold on to your hats as we continue falling...aaaaaaaaaaaaaaah!

Moved on!

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