Soon after the Egypt Economic Development Conference held in Sharm El-Sheikh in March, which acted as a vote of confidence in the Egyptian economy with billions of dollars of promised investments, the local bourse's main index headed south. Observers said the move had been expected as the market had recorded gains during the countdown to the Conference and the market increases on rumours and declines when these become hard news. However, the currently unfolding crisis in Yemen and the start of airstrikes by Saudi Arabia and its allies, Egypt included, have now made things worse. “Capital markets in the region as a whole are closing in the red, with both local and foreign investors heavily selling their holdings as they are trying to hedge against any unexpected developments,” said Tamer Ismail, head of dealing room at Cairo Capital , a local investment bank.. All stock markets in the region are down on their level a month ago amid fears that the conflict in Yemen could prompt a broader regional conflict with Iran. Equities in Dubai have been hardest hit, falling by nearly 12 per cent, according to a report issued earlier this week by Capital Economics, a London-based macroeconomic research group. The war in Yemen could cost Saudi Arabia, leading the coalition against the country's Houthi rebels, over $700 billion of net foreign assets, according to Reuters. The EGX30 index ended the last ten days of March either in the red or with a marginal gain that never exceeded one per cent. The index's gains since the beginning of 2015 came in at three per cent. In 2014, the index outperformed all its regional peers by recording a 30 per cent increase. The low value of trading is another concern, as it reflects poor investor appetite in the markets as well as “the lack of liquidity needed to energise them,” Ismail pointed out. On average, the value of transactions since the beginning of the year has hovered around LE400 million per day. There has not been good news or new companies listed on the market, Ismail said, who asked how such stagnant markets could attract new investments. Many investors are waiting for the issuing of the executive regulations for both the capital gains tax and the income tax laws introduced last year. In July, the minister of finance decided to impose a 10 per cent capital gains tax on annual net realised gains, 10 per cent on cash dividends for short-term investors, and five per cent on cash dividends for long-term investors with ownership exceeding 25 per cent for two years. “Almost eight months after the announcement of this new tax, we still don't understand all its technicalities,” Ismail lamented. The fact that foreigners, whether Arab or non-Arab, have not been net sellers in the first three months of 2015 underscores another concern, according to Ismail, which is their capability to repatriate their profits to their home countries. Due to restrictions on foreign currency transfers, foreigners will have to wait for months before they are able to take profits out of the country. Egypt has been a member of the Morgan Stanley Capital Index for Emerging Markets since 2001, intended to gauge the performance of 21 countries, including Brazil and China. It faced the risk of being downgraded in the index in June 2013 due to concerns related to low foreign reserves and capital controls, all resulting in a lack of liquid investable stocks. At that time, Egypt's foreign reserves stood at $16.03 billion. By this February they had reached $15.45 billion. Investors frustrated by the weak performance of the local bourse found a scapegoat in its Chairman Mohamed Omran. The local business daily Al-Borsa carried out a poll of investors and investment bankers on Omran's performance, with 52 per cent of those surveyed agreeing that the stock exchange should find another head. Omran was appointed in August 2013. Since then market capitalisation has increased by 37 per cent and the number of trading hours extended. The index is also approaching the 10,000 point threshold for the first time ever. Most market analysts say Omran has had nothing to do with the bourse's decline and believe he won't be replaced. But expectations for the coming period are not optimistic, with oil prices likely to remain low, extending the losses in the local market as Gulf investors will be reluctant to invest in locally listed shares. “I think we need to forget the 10,000 point threshold for some time,” Ismail concluded.
