CAIRO - Egyptian stocks have been in the black since the beginning of the year, becoming the world's second-best gainer, a report illustrated. The Egyptian Exchange said in its quarterly report that its main index EGX 30 outperformed major stock markets in New York, Paris, Tokyo, London, United Arab Emirates and Saudi Arabia. The country's benchmark index jumped 38.5 over the past three months, hovering above 5,000 points, as the political turmoil was easing since January. But the situation was not as good as it seemed, an analyst said. "The market is not in the clear yet. Political unrest is still a factor that may turn stocks upside down again," a Cairo-based analyst told the Egyptian Gazette on condition of anonymity. "The report is purely statistical and means nothing really; it does not take the dynamics of the market, its psychological factors and expectations into account," he said. After losing nearly 50 per cent, the country's main index has been on the rebound since the beginning of 2012. Market fluctuations hit stocks last year due to the political unrest that followed the January 25 revolution. The sovereign debt rating of the North African country is seen to cast its shadow on local stocks. "Falling foreign reserves at the Central Bank of Egypt (CBE) will also have a negative impact. No-one can be sure about anything. The legitimacy of the Constituent Assembly is in question," the analyst said, adding that foreign investors were reviewing their stock portfolios here. Egypt's debts stand at around LE1.26 trillion ($210 billion), including a foreign debt worth $34.9 billion, according to the CBE. Internal debts total approximately $175 billion. Foreign reserves at the CBE fell to $15.1 billion at the end of March. The reserves stood at $36 billion at the end of December 2010. "Egypt has been heavily relying on local banks to finance its State budget deficit, accumulating a huge internal debt, which could endanger local lenders," he explained, referring to Standard and Poor's report on the Egyptian banking sector last month. Standard and Poor said that political uncertainties during the political transition and security issues were "hampering Egypt's economic growth and harming asset quality and profitability." "We consider that the extremely high credit risk in the economy comes from direct or indirect exposure to domestic sovereign debt and economic sectors vulnerable to a prolonged economic downturn, including tourism, real estate, and construction," the US-based financial services agency stated, adding that the three State-owned banks accounted for about 40 per cent of system assets, which created market distortions. "Under the ongoing reform programme, the banks are tackling legacy problems; the regulation quality is improving. Political risk could endanger the progress," it added.
