Egyptian shares posted their largest one-day percentage gain in more than a year on Thursday after the army ousted former president Mohamed Morsi and an interim president was sworn in. Cairo's index rose 7.3 percent, trimming its year-to-date losses to 2.3 percent. It was the biggest one-day surge since June 25, 2012, the day after Morsi was declared the country's first democratically elected president.
This week's rebound has erased sharp losses during June that were triggered by severe political unrest. Although the country still faces huge political and economic challenges, many investors feel Morsi's ouster could lead to a more technocratic government which addresses issues such as a sliding currency and ballooning state budget deficit. "The technocrats will know how to deal with institutions - they will help the country financially because they have a clear agenda," said Sebastien Henin, portfolio manager at The National Investor, an Abu Dhabi-based investment firm. "There will be a definitive change to the business environment for international and domestic investors."
Some analysts began to revise their outlooks for companies that were perceived to suffer for political reasons under Morsi's administration, or were hit by a falling currency and fuel shortages. EFG Hermes, one of the largest investment banks in the Middle East, rose 10 percent to 8.73 pounds. EFG recently said it would sell its non-core assets after a planned tie-up with Qatar's QInvest fell through in May because it failed to get regulatory approvals from Egypt's government.
Pharos Holding upgraded its recommendation on the stock to "strong buy" and said it would update its fair value estimate for the shares to 25.60 pounds as soon as full political and economic stability was restored. Investors are also hopeful the new government could secure a long-awaited $4.8 billion emergency loan from the International Monetary Fund, which may be necessary to prevent an uncontrolled slide of the Egyptian pound.
This could remain difficult in coming months, however, as the IMF may prefer to negotiate the politically sensitive deal with an elected government - and it is not yet clear when the next elections will be held. Many analysts said that given the uncertainties, including whether elements of Morsi's Muslim Brotherhood might resort to violence, it was too early to assume the economy would improve.
Fabio Scacciavillani, chief economist at Oman Investment Fund, a sovereign wealth fund, said the next government might be more willing to push economic reforms. But he added, "Economic consequences are hardly predictable. The horizon is clouded." In Saudi Arabia, banks helped lift the index 1.1 percent to its highest level since April 2012. A positive start to the second-quarter earnings reporting season buoyed sentiment across the market.
Saudi Investment Bank climbed 2.0 percent after posting earnings; quarterly profit rose 44 percent compared with the same period last year. "The initial reaction has been positive in the banking sector and we need to see signs of future profitability to invest for the longer term," said Abdullah Alawi, assistant general manager and head of research at Aljazira Capital, adding that the market overall was fairly priced.
"We have an optimistic forecast on petrochemicals, while the growth story in the retail and cement sectors is already priced in," he added. Top lender Al Rajhi Bank rose 1.3 percent to a one-year high after it announced a 2.25 billion riyal ($600 million) dividend payout for the first half. Heavyweight chemical maker Saudi Basic Industries Corp (SABIC) climbed 1.4 percent and retailer Fawaz Abdulaziz Alhokair advanced 2.4 percent. The latter has operations in Egypt. Elsewhere in the Gulf, markets were thinly traded and moved within a tight range in a typical summer lull. Earnings announcements in Qatar will start next week, while United Arab Emirates companies are likely to report towards the end of July.