DUBAI - Egypt's benchmark index made its largest drop in three weeks on Monday after the new president ordered parliament to reconvene, challenging military authority, while Saudi Arabia shares also slid following protests in its oil-producing east. Cairo's bourse fell 4.2 per cent, its largest decline since June 19, with parliament set to meet on Tuesday. This would overturn a court judgment and military order last month that dissolved the legislature. "People fear further escalation from the military," said Ashraf Akhnoukh at CIBC brokerage. "Two days ago the market was a screaming buy - everyone was buying, even internationals who were the main sellers since the start of the year." Saudi Arabia's index dropped 1.4 per cent. The kingdom on Monday said two men were killed in protests in a Shi'ite Muslim area following the arrest of a prominent Shi'ite cleric. These demonstrations were one of several factors weighing on investor confidence, said Marwan Shurrab, vice-president and chief trader at Gulfmena Alternative Investments in Dubai. "Saudi's market is very resilient to regional instability when commodity prices are holding up, but they have fallen a lot in the past two months," he said. "The drop in commodity prices directly affects government income and spending plans, plus there is political instability, whether it's Syria or Iran." US crude has dropped 20 per cent since May 1 on worries a slowing global economy will impact demand. Shares in Saudi Basic Industries Corporation (SABIC), the kingdom's largest listed firm, fell 1.1 per cent. The petrochemical producer's second-quarter profit is forecast to decline 18.8 per cent, according to a Reuters poll of analysts. "Petrochemical earnings will be interesting because a lot of end-product prices weakened and were very volatile in Q2," said Ibrahim Masood, senior investment officer at Mashreq. Zain Saudi fell 4.5 per cent to a new record low as shareholders cut positions to avoid being diluted in the indebted telecom operator's $1.6 billion rights issue, which starts on Tuesday. The firm, which is 25-per cent owned by Kuwait's Zain, has yet to make a quarterly profit and last week cut its capital to alleviate multi-billion dollar accumulated losses, with the rights issue being used largely to ease some of its debts. "The launch of the rights issue is just a preliminary step - Zain Saudi faces a very big challenge to get current shareholders to participate," said Amine Bentaleb, director of asset management at Arqaam Capital in Dubai. "Zain has guaranteed the rights issue should other shareholders decide not to subscribe and so its stake in Zain Saudi will probably increase. "If Zain holds more than 50 per cent of Zain Saudi's shares it will have to consolidate the Saudi company at a group level, which would add a hefty loss to its balance sheet." Zain's shares ended unchanged, down 21 per cent in 2012. Kuwait's index fell 0.5 per cent, taking its losses since May 7's 12-month high to 10 per cent. Kuwait's emir has asked outgoing Prime Minister Sheikh Jaber al-Mubarak al-Sabah to form a new government. "Kuwait is essentially at a standstill due to political deadlock," said a Gulf-based fund manager who spoke on condition of anonymity. "From a macro standpoint, Kuwait should be doing well because oil prices remain high, but state spending has slowed and the government accounts for a huge part of the local economy."
