Morsi faces economic battle after Egyptian market rout

The new Egyptian government faces an immediate challenge to restore confidence in the economy after more than 15 billion Egyptian pounds was wiped off the value of leading shares since Hosni Mubarak was forced out of office.

The new Egyptian government faces an immediate challenge to restore confidence in the economy after more than 15 billion Egyptian pounds (Dh9.1bn) was wiped off the value of leading shares sinceHosni Mubarak was forced out as president in February last year.

Mohamed Morsi, of the Muslim Brotherhood, was elected president with 51.7 per cent of the vote yesterday, defeating Ahmed Shafiq, a former general, the state election committee said.

"Egypt is in a much more fragile place than it was before the revolution," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi (NBAD).

"There is just too much uncertainty, with no constitution and no parliament, and ongoing clashes with the [Supreme Council of the Armed Forces] who are proving to be much more bold than they were before." The total market capitalisation of companies listed on the Egyptian exchange has tumbled to 70bn pounds by the close last night.

That is down one fifth from 87bn pounds on February 11 last year when the uprising forced Mubarak to step down after more than three decades of autocratic rule.

For shareholders, much of the fear has been linked to the currency and the worries over the country's ability to repay its debt obligations. The pound has depreciated from 5.87 to the dollar in February last year, to 6.055 yesterday, its lowest level in seven years.

Egypt has US$1bn (Dh3.67bn) in maturing Eurobonds and an additional $700 million in debt owed to commercial creditors grouped under the so-called Paris Club due next month. The presidential election was seen as a catalyst to securing a much-needed $3.2bn aid package from the IMF.

"The [government] will have to move fast," said Tariq Qaqish, the deputy head of asset management at Al Mal Capital in Dubai.

"The first priority will be to fix the balances, but it won't be easy." Moody's Investors Service has cut its ratings on Egypt's debt four times since the revolution to B2, five notches below investment grade.

Mr Morsi, 60, a US-educated engineer who spent time in jail under Mubarak, has pledged to form an inclusive government to appeal to the many Egyptians, including a large Christian minority, who are anxious over religious rule.

Tensions have been on a high since the military removed powers from the office of the president and concentrated it in military hands. A court also recently dissolved the parliament in which the Muslim Brotherhood won the most votes.

Despite the chaos, Egyptian shares rose 3.3 per cent yesterday ahead of the presidential results, which are seen as an important step towards the transition to democracy and a catalyst that could attract investment. The index closed at 4166.32 points.

"The worst thing you can have for investor appetite is uncertainty, which has had its peak in Egypt," said Mohammed Ali Yasin, the managing director at Abu Dhabi Financial Services, the brokerage arm of NBAD.

"What is important is that a resolution to the matter happens and that people accept it and move on and the markets will benefit," he said.

The biggest laggards on the country's bourse have been companies whose shareholders were seen as closely associated with Mubarak's regime.

Property stocks, such as of the luxury developer Talaat Moustafa Group and Palm Hills, have lost as much as 34 per cent and 64.6 per cent each, trading at 3.75 pounds and 1.55 pounds, respectively, after a string of legal rows ignited last year over how the government of Mubarak sold state land.

The investment bank EFG Hermes, in which the ousted president's son Gamal Mubarak holds an 18 per cent stake in its subsidiary EFG Hermes Private Equity, has lost 50.6 per cent to 9.39 pounds a share.

Ezz Steel's shares have lost 62.1 per cent their value, trading at 6.03 pounds each. Ahmed Ezz, a steel tycoon and the major shareholder was charged in November with illegally acquiring shares of the state-owned company Dekheila.

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