CAIRO: Commercial International Bank's global depositary receipts (GDRs) dropped 15 percent in London last week, reaching their lowest level since July. “CIB has the largest tradable free float and so will also reflect the ups and downs of sentiment driven by the turmoil in the Middle East in general and Egypt in particular,” said Mark Rorison, CI Capital Group Director, head of research. Rorison attributes the Egyptian stock market being closed as the biggest factor in the GDRs tumbling downwards. “External press sees continuing strikes and demos in Egypt as pessimistic for the economy to turn back on as a sign of continuing uncertainty,” he explained. The Egyptian Stock Exchange has been closed since January 27 and has been closed for 24 business days to date. Orascom Telecom Holding has traded at 5.2 percent below its trading price since its close on the day the EGX shut down. “The closed stock exchange does not help with any ‘price discovery' and as Bloomberg business week has suggested — Egypt risks getting pariah status for investors since the bourse's closure is unprecedented, and risks damaging sentiment for foreign investment into the country,” said Rorison. He went on to explain that the optimism and enthusiasm for the future and economy to restart again quickly diminished rather fast due to the continuous strikes. Business activity, which resumed regularly for a period, is again being sporadically stalled. “The longer it goes on means the greater economic impact. Wage rises without productivity gains and businesses restrained because of continuing curfew and disruptions, likely means slower economic growth and lower corporate profitability for a while,” Rorison said. “The sooner things get going, the more exciting the invest story will become and the more resilient the economy will be,” he added. The Egyptian Exchange was set to open on March 6 but the re-opening was postponed indefinitely citing the recent resignation of former prime minister Ahmed Shafiq. Egypt's new PM is Essam Sharaf. Investors have protested outside the bourse in Cairo asking that it stay closed until the economy is stable enough. Rorison admits that he, and many others, are bewildered as to why the bourse is staying closed and believes it is damaging the economy and image of the country by doing so. “The longer it stays shut then conspiracy theories start and there is not such point in speculating; the market needs to open,” he says. “One of the consequences will mean that market abuses such as excessive leverage for retail investors to trade shares will get punished — i.e. any losses are exaggerated.” He adds that “this is a short term thing and ‘cleans' up the system so that savings generally get better institutionalized and less gambling on leverage is done.” Recent talks have been speculating about the MSCI looking at de-listing Egypt if its closure reaches 40 business days or more. “Some foreign funds have said it risks the EGX getting Pariah status. There is a real risk that it is removed from the MSCI emerging market index, and in which case it becomes off-benchmark and potential foreign investment shrinks,” said Rorison. “The risk premium has gone up, but as the matter settles we will still find investors looking at Egypt and prepared to buy into it if they think they will make a return,” he said, adding that everything has its value, including opening the market. He believes that if the country can present a strong case then it will be able to attract good investment levels and bring back foreign investors that have been deterred by the current situation and the uncertainty. “The EGX being closed is really just a huge signal to the world that it is not (yet) business as normal in Egypt,” he says.
