Malcolm Gray, portfolio manager of the Investec Africa Opportunities Fund, and the Investec Frontier Investment Team give an update on events and their views on Egypt.
The situation has changed rapidly in Egypt over the past three days. The degree to which protests, riots and looting have been reported in the media and local sources has been extensive. Looking beyond the headlines, however, feedback from Cairo indicates that most areas of the city (and reportedly the rest of Egypt) have to date been largely unaffected by the protests in terms of threat to lives and property. The implications for potential social and political change are however significant.
Some of our expectations of the likely course and consequence of events have been met, however events continue to move rapidly. Although there appears to be significant media coverage about the pressure on Mubarak to resign, we also note a general sentiment of appreciation and respect for what he has overseen in terms of economic policies and reforms over the past 30 years. It is nevertheless clear that he has outlived his tenure and there is a desire for him to leave office; in addition there is now almost no chance that his son, Gamal Mubarak, will succeed him. As expected Ahmed Ezz, a prominent businessman and close associate of Gamal, has stepped down as secretary of the ruling party. The appointment of Omar Suleiman as Vice President – although not universally positively received – is a clear sign that change is now inevitable, and the role the military will play remains crucial, possibly as the transition manager to a new government. Two new key cabinet appointments have also been announced.
From an investor point of view we note:
- The Egyptian markets were closed yesterday (Sunday, 30 January 2011), due to the imposition of a curfew. Banks are closed, and economic activity is limited to shopping for necessities. We expect the market to reopen once the curfew is lifted.
- Regional markets were mixed on Sunday:
- Qatar’s QE Index slid 3%
- Dubai’s index was down the most in eight months at -4.3%
- Saudi Arabia’s Tadawul All Share Index rebounded, climbing 2.5%
- Although not our central scenario, the likelihood of radical change has now increased. The events of the last few days have come as a shock, and investor sentiment has been severely dented. Our expectation is for an aggressive short-term sell-off in Egyptian listed assets when markets open in the coming days.
- However, given that there are a number of Egyptian stocks with London-listed GDRs as well as an ETF, there will be some means for short-term price discovery from today.
- We note that an aggressive sell-off may well prove a very attractive long-term buying opportunity. However this should be balanced with the consideration that the end result of the political instability is uncertain, and there is no guarantee of a continuation of the very successful economic policies of the last few years.
- We note that the risks have increased significantly in the short term, but hope that the events of the last few days will result in positive change in the long term.