Why Egypt's bourse seems optimistic

Although inflation in September had reached more than 10% and the United States of America had cut off part of its aid to Egypt, the stock market last week spoke a language that was far from fears. Investors showed confidence last Thursday, as stocks of the EGX30 index rose by 0.69%, reaching 5765.8 basis points. On Sunday, the stocks rose for another 1%.

Ehab Rashad, Managing Director at Mubasher Trade Egypt, told Daily News Egypt that this rise means that the events of 6 October passed with minimal losses. “Muslim Brotherhood supporters failed to paralyze the state on Sunday,” he said. Although several people from Anti-Military-Coup rallies had died in clashes with security forces on that very day, state TV-channels and several other media outlets mainly focused on the festivities of the 40th anniversary of Egypt’s victory in the 6th of October War. Several singers, actors, public and political figures had attended the ceremony.

Yet, there seem to be other reasons to why the index had risen - for instance, Egypt’s confident stance towards the International Monetary Fund (IMF). Talks between the IMF and Egypt had been ongoing for over a year, but the country’s attitude towards the financial institution had dramatically changed. From almost begging for the loan during the era of former President Mohamed Morsi, Egypt’s current government seems to have become much more confident and independent in that respect.

Prime Minister Hazem ElBeblawi even downgraded Egypt’s representation at the IMF negotiation meetings to be at the level of ambassador, for the following three reasons: Firstly, the IMF is studying Egypt’s participation, which seemingly offended the government, as Egypt is one of the founders of the financial institution. Back in July, the IMF even stated that it would not deal with the government established after the ousting of Morsi unless it is recognized by the international community. Secondly, the invitation to the meetings had arrived late and thirdly, ElBeblawi stated that Egypt is no longer in need of the IMF-loan.

A few days ago, IMF Chief Christine Lagarde announced that the institution is “keen and ready to engage with the Egyptian authorities in order to help the country and the people of Egypt stabilize the situation, [and] address economic difficulties that it’s facing,” which indicates a sudden change of sentiment towards the recently appointed Egyptian government.

The lack of need for the IMF-loan is connected to another reason for the investors’ confidence in EGX30 on Thursday and Sunday: Egypt had received several aid packages in billions of dollars from the Gulf and Arab countries, which are now being translated into tangible projects. The Deputy Managing Director of the IMF Nemat Shafik said on Thursday that the IMF would be open to a joint Egypt program with Gulf countries in the transition period. An example on how the aid money is being invested was reported by Khaleej Times, stating that the United Arab Emirates (UAE) is building 13,000 housing units in 6th of October City to accommodate 80,000 people as “part of its support to the brotherly country”. On a visit to the construction site, UAE’s Minister of State Dr. Sultan bin Ahmed Sultan Al Jaber stated: “The UAE is implementing a package of projects aimed at delivering direct, fast and positive impact on the Egyptian people within the context of the long-standing bilateral ties which are based on mutual transparency, affection and respect.”

Remittances to Egypt had also seen a soar, as they tripled since 2009, according to the World Bank. In 2013, remittances to the country had reached $20 billion, which is three times larger than the Suez Canal revenue. The World Bank stated in its Migration and Development Brief that the stronger remittance flows in Q2/2013 will help in strengthening the balance of payments, as remittances are equivalent to about 165% of Egypt’s reserves – an additional reason to believe that the country’s potential seems to take on an upward slope.

Egypt seems also self-assured towards Washington’s decision to curtail military and economic aid, as the government stated that it would “not bow to American pressure” and business tycoon Naguib Sawiris even wrote on Twitter: “Cutting military aid to Egypt is an arrogant counterproductive action! Do not underestimate the pride of the Egyptian people!”

Additionally, the 9th Money and Finance Conference 2013 had taken place in Cairo two weeks ago. The conference hosted a number of ministers and high-ranking experts in eight panels, which gave insights on, statistics about and solutions for a number of challenges that Egypt is facing in various sectors. As an internal dialogue between public and private sector for an international audience, the speakers had touched base with a number of problems facing Egypt’s economy and financial situation. The conference gave the local and foreign investors an image of the current atmosphere, and this – more or less – might have positively affected the EGX30 index.

Egypt’s banks will be on holiday for six days, as the Muslims celebrate Eid AlAdha. The political and social happenings during this holiday will determine how the bourse will act after it goes back to trading.