Egypt's stock market is poised to extend gains this week amid increased optimism over political progress.
The EGX 30 Index has risen 28 per cent so far this year. January was a good month for world markets, too - giving them their best run in 18 years.
Trading in Egyptian stocks has increased, boosted by foreign participation, as sentiment improved after the country formed its first parliament since Hosni Mubarak was deposed from the presidency a year ago.
"Everybody is happier now," said Wafik Dawood, the head of institutional trading at Mega Investment Securities in Cairo. "This is just a glimpse of what further development on the political front could lead for Egyptian equities."
Daily traded value has surged to nearly US$50 million this year, compared with an average of $15m last year. Foreign investors now account for 25 to 50 per cent of total daily trading on the Egypt stock Exchange, Mr Dawood said.
The bourse plunged 45 per cent last year when the popular unrest that forced Mr Mubarak from office also caused a flight of capital. Officials last month began negotiating a $3.2 billion IMF package to help the country to cope with its budget deficit.
"Having the first elected government in Egypt since the revolution and talks with the IMF have been fundamental for the Egypt market," Mr Dawood said. "If Egypt can follow IMF's requirements, it will open the door for other international financial institutions to provide facilities in the country."
The central bank on Wednesday reported foreign reserves fell last month to $16.4bn from $18.1bn in December.
"Any currency devaluation this year would affect the market negatively," Mr Dawood said.
The international ratings agency Standard & Poor's on Friday downgraded Egypt's long-term foreign and local currency sovereign credit ratings to "B", from "B plus". The outlook was negative.
"The negative outlook reflects our view of the likelihood of a downgrade either if the government fails to stem the decline in reserves, or an uncertain policy environment and weak institutions emerge from the ongoing political transition," S&P said.
"The political transition process could be undermined over the coming year as the constitution is redrafted and a new president is elected - currently expected by June 2012 - after which a new government would be formed. In our view, the transition to more-participatory political institutions in Egypt could falter, leading to weaker political institutions and rising domestic conflict," S&P said. The country is expected to hold a presidential electionnext month.
Fadi Al Said, a senior fund manager at ING Investment Management in Dubai, said investors needed more clarity on Egypt's outlook before making investment decisions.
"We took advantage of this strong rally to get out," Mr Al Said said. "We need more visibility and transparency. We don't buy based on political headlines but on the business outlook for the companies."
Market observers are also watching for other factors this week.
Telecom Egypt, the country's fixed-line telephone monopoly,is expected to pay a dividend of 0.30 pounds per share on Thursday.
Palm Hills Developments, a developer of luxury properties, is scheduled to attend a court hearing on Wednesday over the legality of its purchase of state land to develop Palm Hills Katameya.
Property companies in Egypt are dealing with a string of legal challenges to their land acquisitions since a court ruled last year that a state deal with Talaat Moustafa Group, the country's biggest developer, was illegal.
Global markets will be monitoring events in Greece. The country must secure €14bn by March 20 to avoid a default.
In the UAE, the Abu Dhabi Securities Exchange General Index declined 0.4 per cent to 2,466.74 last week, while the Dubai Financial Market General Index rose 2.3 per cent to 1,486.90.
Elsewhere in the region, Kuwait's measure rose 0.1 per cent to 5,864 for the week, Bahrain was little changed at 1,136.87, Oman's rose 1 per cent to 5,622.18, and Qatar's was up 0.1 per cent to 8,689.83. The Saudi Tadawul All-Share Index moved 0.1 per cent higher yesterday to 6,804.03.
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