Cairo has been one of the world's best-performing markets so far
this year, even though a weak currency and even weaker central
government have raised questions about Egypt's stability.
[caption id="attachment_58275" align="alignright" width="300"
caption="The landmark Cairo Citadel, Egypt"]
[/caption]
The Egypt fund (
EGPT
,
quote
) rebounded around the New Year, soared 48% in the first week of
March and then gave back about half its gains as traders started
worrying about
weak growth
and the prospect that political infighting would prevent the
country from securing a key IMF loan package.
While the political situation will probably remain a challenge
for the foreseeable future, at least the $3.2 billion IMF loan was
finally secured on April 5.
A few days after that, EGPT bottomed out at $11.51 and is now a
comfortable 12.8% off that low point. Capital flight is still a
long-term threat for the country -- Egypt has been bleeding up to
$2 billion a month since the uprisings began early last year -- but
liquidity from the IMF pushes the crisis back to the end of the
year and gives traders hope that a longer-term solution could
emerge well before that point.
Moreover, a global decline in inflation has taken the edge off
the commodity-dependent domestic economy. Egypt is one of the
world's leading importers of grain to feed its people and is
distinctive among members of the Arab League for its lack of
hydrocarbon reserves, forcing it to import oil and gas.
Even when unrest in the country rattles energy markets, it is
largely because a disruption to the Suez Canal or the gas pipeline
leading to Israel would interfere with the global transit of fuel,
not with production or supply.
After inflation reached a dangerous 9.2% in February, the
Egyptian pound has gotten a bit of strength back, reviving 2% in
the last two weeks alone.
This is still an economy that's vulnerable to speculators, but
for now the weight of global sentiment seems to be on Cairo's
side.
And for U.S. retail traders, EGPT remains the only real way to
play. While there are two Egyptian stocks that occasionally move
over the counter in the United States, turnover is spotty at
best.
The country's leading lender, Commercial International Bank of
Egypt (
CIBEY
,
quote
), is arguably the more liquid of the two, accounting for a full
8.4% of EGPT as well.
Orascom Construction (
ORSDF
,
quote
) is probably best known to Emerging Money readers as a sister
company to Orascom Telecom, the regional cell phone network
bought out
by Russia's Vimpelcom (
VIP
,
quote
) in 2010.
While the VIP bid significantly reduced Orascom magnate Nassef
Sawaris' corporate empire in Egypt, ORSDF is still a name to
conjure with in Cairo, with EGPT having another 8% of its holdings
in the stock.
Since the global take on EGPT hit bottom on April 9, ORSDF --
the less liquid of the two stocks -- has continued to decline.
CIBEY is up, but it's definitely lagged the rest of the Egyptian
market.
Given the slim odds that a retail trader can even put together a
reasonably sized position in either CIBEY or ORSDF, handicapping
them against EGPT's prospects seems a little moot. If you want to
speculate on Egypt -- one of the most robust economies in the Arab
world and Africa -- then EGPT really is the way to go.
