Friday, June 8, 2012

Today's Major Market Move: Egyptian Stock Market Up 24% Year to Date

Even with all of the global economic turmoil, 2012 has been a decent year for equities (so far). 49 out of 90 benchmark equity indexes are in the green and the top performer, Venezuela, has seen it's stock market more than double. Here's the top 10 gainers in 2012 year to date:

Click here to go to the live table.

Bringing up a distant second place is the subject of today's Major Market Move post, the Egyptian stock market. The EGX 30 Index was actually up as much as 50% back at the beginning of March but has since fallen off to where it is now only up 24%.

Click here to go to the live chart.
The last time we discussed the Egyptian stock market was back on March 16. One big question mark facing the Egyptian economy at that time was when (or even if) a much needed loan agreement with the IMF would be successfully completed. Egypt was burning through its foreign currency reserves in order to prop up its currency. In that March 16th post we surmised that the Egyptian authorities would be very motivated to get a deal done sooner rather than later. Well here we are almost three months later and still no deal. Here's some color on the current state of the negotiations courtesy of the Daily Beast:
True, the government and the IMF are in advanced negotiations about a $3.2 billion loan to help Egypt avoid a disorderly devaluation. But the military’s refusal to allow the Brotherhood to form a government after its parliamentary victory led the latter to withhold support for the loan. The IMF is, in turn, refusing funds until it’s clear that the successor to the current military-appointed caretaker government will support the loan. Moreover, the IMF package is just a fraction of the $10 billion to $12 billion the Egyptian government and the IMF estimate the country will need to avoid a disorderly devaluation.
The Egyptian pound has managed to hold steady for the first half of the year (chart of USD / Egyptian Pound cross):

Click here to go to the live chart.
But the resilience of the currency is due in part to some accounting shenanigans. The following is from Al Araybia:
Egypt’s foreign reserves rose by $302 million in May, their second successive monthly increase, but the positive number may mask a continuing deterioration in Egypt’s finances, analysts and traders said.

Foreign reserves climbed to $15.52 billion at the end of May from $15.21 billion at end-April, the central bank said.

The reserves figure apparently includes $1 billion that the central bank received from a May 15 sale of dollar-denominated T-bills to local banks, money from that came from inside Egypt and does not represent an improvement in the balance of payments.
When the central bank receives funds from T-bill sales, it transfers them to the Ministry of Finance in Egyptian pounds while keeping the U.S. dollars as foreign reserves, a Cairo-based currency trader said.

This would indicate that without the $1 billion in dollar T-bills, reserves would have fallen by $700 million, traders and analysts said, a number that suggests Egypt continues to bleed from the political and economic turmoil of the last 18 months.

Reserves have tumbled by more than half since the popular uprising in early 2011 scared away tourists and investors, two of Egypt’s main sources of foreign currency.

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