Cairo's stock market fell to its lowest in almost two years yesterday as protesters defied the government's ban on demonstrations against the ruling party.
Trading on Egypt's stock exchange was temporarily suspended as demonstrators took to the streets of Cairo in an unprecedented show of protest against the government.
The country's benchmark index fell 10.52 per cent on a second day of losses. It has fallen 16 per cent in the past two days.
"It was crazy, when [the Egyptian index] opened, it went down 1 per cent in less than 10 seconds," said Alfred Fayek, the head of Mena equity sales at EFG Hermes.
"There was a big panic from the retail investors [and] as long as it's not stable, the market will remain like this and be very volatile."
Activists have demonstrated in an attempt to oust Hosni Mubarak, the Egyptian president.
Earlier this month in Tunisia, the so-called "Jasmine Revolution" led to the toppling of Zine al Abidine Ben Ali, the president.
The EGX 30 Index tumbled 4.87 per cent after the market re-opened, having fallen 15.68 per cent in the past week.
Trading was stopped 10 minutes into the session, before resuming after about an hour.
The Egyptian pound fell to a six-year low against the US dollar and the debt market in Egypt, Africa's second-largest economy, also took a hit.
Spreads on five-year credit default swaps (CDS), the cost of insuring debt in Egypt, have leapt this week and now stand at 346.7 basis points.
CDS in Iraq, traditionally considered a far riskier country for investors, are at 328.28 basis points.
Six people have died in the Egyptian protests.
Last week, Cairo's index felt the beginnings of political tensions in the country as it fell 6.4 per cent to 6,698.39 points.
Previously the bourse had remained robust since 2003, even during the financial crisis when it gained 35.1 per cent in 2009.
It gained 15 per cent last year. Some market experts said the political situation in Egypt and the other countries did not warrant a panic on the markets but was, rather, a buying opportunity.
"I can't say investors aren't worried because the selling pressure is intense, but the feeling is that it will not go on for months," said Ahmed Beydoun, the head of global markets equity for the Mena region at Deutsche Bank.
"There is a likelihood that we will also overreact on the downside [and] that will eventually create a good buying opportunity."
Egypt's emerging market status had made it popular among institutional companies expanding their portfolios in the North African region. Orascom Construction, Ezz Steel and Egypt Telecom have been cited by analysts as bargain investments that will reduce in value.
The three stocks fell 8.35 per cent, 12.9 per cent, and 4.41 per cent respectively yesterday.
As money floods out of Egypt, fund managers and traders also expect other Mena region countries to benefit.
"We are keeping our eyes open to other regions where there hasn't been any movement," said Musa Haddad, the head of Mena equity at the National Bank of Abu Dhabi Asset Management.
He said the UAE, an under-performer last year compared with its peers, could be a beneficiary of shifting investment.
A government decision over the weekend could see the Egyptian bourse stabilising next week, fund managers said.
"It will depend on [decisions made] during the weekend. We should probably have some opening signs from the government and it should help to ease market tensions a bit," said Sebastien Henin, the Mena portfolio manager at The National Investor, an investment bank.
"The market should start to stabilise," he said.
