Intraday Market Thoughts

Archived IMT (2011.01.31)

by Ashraf Laidi
Jan 31, 2011 19:52

THE HISTORIC POLITICAL SHAKEUP IN EGYPT will take time to resolve itself. Aside from the obvious fact of the Street’s resentment with the current regime, uncertainty will rein at least until the September pres elections. Until then, expect intermittent clashes with authorities as long the Street sees no moves progress towards transparency in the upcoming electoral process. In spite of the escalating risks and repercussions emerging from Egypt’s political upheaval, there are is an important comforting element of reality, which would reduce the threat of a full-blown regional crisis and emerging market contagion; The Egyptian Military, principal recipient of US aid and chief safeguard of national security, has clearly kept its hands off the current political transition thereby improving its credibility in preserving civil orde, protecting resources, Suez Canal, banks and key businesses. The Military is aware of the importance of ensuring the smooth operation of the Suez Canal, which is not only a vital source of Egypt’s FX receipts, but also ensures the supply/movement of crude oil. 10% of world trade flows through the Canal and 7% of its annual ship traffic carries crude oil. EGP hit fresh 6 yr lows at EGP 5.85 due to selling from foreign and Egyptian investors holding equity/treasuries. Reports suggest business execs & former politi officials starting to transfer funds abroad. EGP is a freely convertible but remains subject to periodic intervention. EGP is likely erode another 5-7% teaching 6.2. This could prompt foreign investors into reducing their FX exposure in their high yielding bills/bonds investments. ALTHOUGH EGYPTIAN BONDS/BILLS pay a hefty yield (3-mth T bills pay as much as 11.5% and 1- year pay 12.4%), investor selling could ensue to reduce FX exposure. ** ASHRAF’S INTERVIEW on CNBC ARABIA discussing Egypt, political risk, oil and the China question


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