Egypt Book 2012
Comment of the Day

January 30 2012

Commentary by Eoin Treacy

Egypt Book 2012

Thanks to a subscriber for this interesting heavyweight (227-page) report from Capital Research. Here is a section:
The performance of the Egyptian stock exchange is likely to remain hostage to changes in the political scene, social unrest, and the resulting implications for the macro-economic environment. Hence, while parliamentary elections passed-off relatively smoothly, instability will likely persist – at least until the ruling military council hands over power to a newly-elected president, expected by June 30th, 2012. Even then though, the restoration of business confidence will take time, particularly amongst those concerned over the investment policies of an Islamist-based parliament – a likely scenario now given the success of the Freedom & Justice Party (FJP) in the recent polls. So, despite the EGX 30 currently trading at a discount of 45.3% vs. MSCI Emerging Markets on a F12m PER, the elevated political risk will – in the main – continue to dampen investor sentiment. Equally, uncertainties on the domestic front and the prospects of weaker global economic recovery mean that market volatility is likely to remain high as well.

However, despite the weak current data, Egypt still represents a genuine investment opportunity. With a sizable population, demand fundamentals remain solid. This inherent long-term investment story allied to Egypt edging closer to civil democratic rule with an “investment-prop” approach, means those who tap the market with a long-term vision will be the real winners.

Eoin Treacy's view North Africa's social upheaval has disrupted the status quo. There are now a large number of questions left unanswered as to how Egypt, Libya and to a lesser extent Tunisia will organise themselves politically, economically and diplomatically. The ascension of a religiously focused administration in Cairo is a concern but the market seems to have discounted an even more uncertain outcome.

The CASE-30 Index retested the 2009 low at the beginning of the month and last week's strong performance represented the largest upward dynamic in a number of years. It has now broken the progression of lower highs and closed the overextension relative to the 200-day MA. A sustained move below the December low would be required to question current scope for some additional upside. The Hermes Index has a similar pattern.

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