Market Report: Egyptian stocks tumble for second day on corruption purge

Main index loses 3.17 per cent on legal action against the chiefs of major companies, say analysts

Egypt's benchmark stock index tumbled over 3 per cent on Monday, pulling the market lower for a second consecutive day as investors worried that an investigation into the head of a leading private equity firm signalled a major widening in anti-corruption probes.
The benchmark EGX30 closed 3.17 per cent lower at 4,956 points, deepening Sunday's 3.43 per cent decline. The drop pushed the index's year to date losses to over 30 per cent.
Brokers said the drop was fueled by authorities' decision to ban Ahmed Heikal, the chairman of Citadel Capital, from traveling abroad and a decision late last week by an Egyptian government agency to rescind preliminary approval to sell 20 million metres of land to the Egyptian Resorts Company.
The plunge in EFG-Hermes stock value is also believed to be connected to Gamal Mubarak's involvement with the company. Conflicting reports suggest he may have served on the investment bank's board of directors.
"It's clear people are panicked because of these decisions," said Khaled Naga, a senior broker with Mega Investments.
The stock market's trading board was awash in red.
Of the 184 listed stocks, 173 posted losses according to the exchange's website. A total of LE483,027,246 changed hands in stock trades, but construction and materials was the only sector to see gains.
Financial services were hit hard, with shares in Citadel Capital down 9.38 per cent and EFG-Hermes seeing its shares tumble 9.7 per cent.
Heikal, Citadel's chairman, had been a managing director at EFG before founding the private equity firm and the investment bank's shares appeared to be taking a beating in part because of his prior links to the institution.
Bucking the trend were shares in Kafr El-Zayat Pesticides, up 9.2 per cent, and Arab Pharmaceuticals, up 7.8 per cent.
Egyptians were responsible for 61.7 per cent of Monday trade and were net-buyers to the tune of LE11.8 million. Non-Arab foreigners represented 30.1 per cent but offloaded some LE19.6 million in their eagerness to exit the market.
Economists and analysts say that the rampant corruption in Egypt under Mubarak meant that success in business involved having to cosy up to the regime and have cautioned against pushing justice too far.
"Instead of going after every businessman, they should be much more mindful of fixing the system so that it becomes more transparent," said John Sfakianakis, chief economist with the Riyadh, Saudi Arabia-based Banque Saudi Fransi, adding that the new Egyptian government cannot simply "react to popular sentiment" calling for broader crackdowns.
"They should be looking at the system instead of the actors. The system was corrupt," he said.
The fall in Egyptian stocks was echoed across the Atlantic, where the US's Dow Jones index slipped 1.4 per cent and the Nasdaq composite dipped 1.5 per cent in morning trade.
The fall was prompted by Standard & Poor's downgrading of the US's debt and concerns about global economic growth.