No quick fix to Egypt’s economy despite share rally, experts say

Egypt’s grave economic problems will take time to address, experts said, despite positive signals from this morning’s share rally prompted by the overthrow of Mohammad Mursi as president.

Egypt’s benchmark index today closed up 7.31 percent to 5,334.54, after trading was suspended for a period under rules designed to limit volatility.

Despite rosy investor sentiment at the news Mursi had been toppled, experts said wider economic recovery would not be immediate.

“The spike in shares doesn't speak to the medium or long-term health of the Egyptian economy,” said Trevor McFarlane, research director for the Middle East and Africa at Gulfstat, an independent economic research company.

“Remember the stock market rallied when Mursi came to power, too. We could easily see this optimism disappear if the new rulers fail to gain wider political support. There is still a long way to go before Egypt can pull itself out of the economic hole dug by its politicians.”

Nasser Saidi, former Lebanese economic minister and former chief economist at the Dubai International Financial Center, said Egypt had “entered a period of great uncertainty”.

This morning’s share gains were not indicative of a broader economic recovery, he said.

“I think this would be a period of market volatility so I wouldn’t read too much into the current moves,” said Saidi, who is now president of Nasser Saidi & Associates.

“The markets were down very substantially so it is a reaction to maybe an oversell before. Earlier in the week, prices plummeted... It is a short-term reaction. We don’t know what’s going to happen next. It’s not a forward-looking move to say 'we have removed uncertainty'. We have not.”

John Sfakianakis, the chief investment strategist of Masic, a Saudi Arabian family investment company, described the jump as a “relief rally” on the local stock market.

“In many ways, the only way is up for Egyptian stocks. The June slide in Egypt’s stock market was the worst among emerging markets,” he said.

“The economic situation is really desperate and although things can go wrong from here on with good management and a responsible government there is much upside the economy can see,” he added. “The road to recovery is long but Mursi’s departure could signal an end to the catastrophic collapse of the country’s economy and an end to a long year of neglect and mismanagement.”

Today’s share rally in Cairo was attributed to investors’ hope that the new government will address issues such as the sliding currency, budget deficit, and will be able to seal a long-delayed $4.8 billion loan from the IMF.

McFarlane said that Egypt still has a weak outlook in the medium term. The Arab world’s most populous nation suffered economically under Mursi’s 12-month rule, with levels of debt, unemployment and poverty all having risen.

“Both foreign investors and tourists will take a wait-and-see approach before deciding to pile back into Egypt,” McFarlane said.

“The government needs to get serious about fixing the economy, and part of this will mean raising sales tax and cutting subsidies, which essentially cannibalize the economic base of the country. Looking at the broader picture, policy makers also need to tackle some of the issues that helped cause the revolution."