DUBAI: Egyptian stocks jumped 2.2 percent Thursday to their highest level since September 2012 after the United States cut off some aid to Cairo – underlining how many investors now see the key to economic recovery as aid from Egypt’s Gulf allies, not the West.
The main index rose to 5,932 points, nearing major technical resistance at 6,025 points, the September 2012 peak. It broke above this year’s high of 5,884 points, hit in January.
The market has been rallying for most of the time since Islamist President Mohammad Morsi was deposed in early July, and many local investors have not been deterred by political bloodshed since then, viewing it as a necessary price for the army-backed government to establish control.
Mohamed Radwan, director of international sales at Egypt’s Pharos Securities, noted that local retail investors, the main driver of the recent rally, were mainly supporters of the government.
There have also been signs in recent days that some foreign institutional investors are starting to return to Egypt; foreigners were net buyers by a large margin Thursday, according to bourse data.
The U.S. aid cut, designed to pressure Cairo to do more for democracy and human rights, will deprive it of military equipment as well as $260 million in cash aid.
But it is dwarfed by the $12 billion in aid which Egypt’s Gulf allies, pleased by Morsi’s downfall, promised in July. In a report Thursday, Fitch Ratings said the U.S. action would have little impact on Egypt’s external position and would not affect key indicators such as foreign reserves.
Trade and Industry Minister Mounir Fakhry Abdel-Nour told Reuters that the government planned a second economic stimulus package worth billions of dollars early next year. That will almost certainly be made possible by Gulf money.
“Another factor is a decline in local interest rates after a lot of Gulf countries provided financial aid to Egypt, reducing pressure on public finances,” said Simon Kitchen, a strategist at EFG-Hermes in Cairo. “This has pushed local retail investors and institutions into the stock market.”
However, he added: “My concern is that it’s a little bit euphoric. There is still uncertainty on the political scene, you still have terrorist attacks continuing as well as the adverse relationship between the Muslim Brotherhood and the government.
“Foreign investors haven’t been really participating in this rally seen in the last few months and without foreign investors, it is hardly sustainable.”
In the Gulf, markets were supported by hopes that U.S. politicians were inching toward resolving the crisis over the U.S. debt ceiling. But with Gulf markets due to be closed next week for long Eid holidays, trade was narrow and turnover was thin.
Dubai was buoyed by buying in some speculative stocks such as Dubai Investments, seen as a play on hopes that the emirate will win in late November the right to host the 2020 World Expo. The stock rose 2.9 percent, while the Dubai index climbed 1.2 percent.
Oman’s Galfar Engineering and Contracting dropped 1.2 percent after the company said its managing director had been called for questioning by “concerned authorities.”
Galfar did not name the executive or provide any additional details, such as why he was being questioned; calls to the company and Omani authorities did not provide additional comment.
The small number of third-quarter Gulf corporate earnings announced before the Eid holidays have been mixed, with several disappointments among Saudi banks. After Thursday’s close, Al Rajhi Bank, Saudi Arabia’s largest listed lender, said net profit fell 8.1 percent to 1.72 billion riyals ($458.6 million); analysts had on average expected a profit of 2.08 billion riyals.