Egypt's stock market went on sliding on Monday because of fears of a currency devaluation and higher interest rates, while most major Gulf markets rebounded. The Egyptian equities index, which sank 2.6 percent on Sunday, lost a further 2.8 percent on Monday. Strong US economic data at the end of last week suggested a rate hike there next month, pressuring the Egyptian pound.
Meanwhile, Egypt's two largest state banks launched Egyptian pound savings certificates with a high 12.5 percent interest rate. Traders speculated this could be part of preparations for the central bank to abandon a slow, managed depreciation of the pound and instead engineer a large, one-off devaluation. Such an approach might be positive for the stock market in the long run by dealing decisively with a hard currency shortage that has overshadowed the market for years.
But it would be risky; the central bank might find it hard to stabilise the pound at a lower level, and it might need to raise domestic interest rates to deter fresh capital outflows. "Obviously, higher rates mean more pain to leveraged companies, higher required rate of return, and lower equity valuations," Pharos Securities said in a note. "We are biased to conservatism and hence advise clients to remain cautious." Yields rose only marginally on Monday at an auction of five- and 10-year government bonds, which was fully subscribed. But central bank officials did not clarify their intentions and the uncertainty pushed Egyptian debt insurance costs up to 18-month highs.
Growing evidence that last week's crash of a Russian airliner in the Sinai was caused by a bomb may add to pressure for currency depreciation by hurting tourism revenues. London-based Capital Economics estimated Egypt's tourism receipts could fall as much as $3.5 billion in the next 12 months. Shares in Commercial International Bank tumbled 6.9 percent on Monday and property developer Palm Hills Development fell 5.5 percent. A few stocks that might benefit from currency depreciation rose. Alexandria Container and Cargo Handling, which could win more business if a weaker currency encourages foreign shippers to use its services, jumped 10 percent in its heaviest trade since June 2011.
Telecom Egypt, which as a telecommunications firm is seen as a defensive stock, outperformed, losing only 0.5 percent. The Saudi stock index, which had dropped 0.6 percent on Sunday in response to the US interest rate threat, bounced from technical support at its August low of 6,921 points. It climbed 1.3 percent to 7,105 points. Petrochemical blue-chip Saudi Basic Industries jumped 3.1 percent and insurer SABB Takaful added 4.9 percent.
Saudi Printing and Packaging, which began tumbling on Thursday as a bubble in the stock burst, swung wildly. It plunged a further 10 percent in early trade but closed 10 percent higher. Saudi central bank governor Fahad al-Mubarak sought to reassure the financial markets on Monday, telling Ekhbariya Television that commercial banks had plenty of spare cash and a recent rise in money rates was partly due to seasonal factors. The three-month Saudi interbank offered rate jumped to 1.00375 percent on Monday, its highest level since 2009, from around 0.78 percent in late July, boosted by the drain on liquidity from government bond issues to cover a huge budget deficit caused by low oil prices.
The Dubai stock index, which sank 3 percent on Sunday, rebounded 1.0 percent. Emaar Properties added 1.5 percent. But healthcare and education investment company Amanat Holdings, which listed last November, fell 0.9 percent after reporting a net profit of 7 million dirhams ($1.9 million) for the nine months through September. The vast bulk of its earnings came from profits on Islamic deposits rather than investments in other companies. Abu Dhabi's index rose 0.8 percent as Aldar Properties, the most heavily traded stock, rebounded 2.6 percent. Qatar fell 0.5 percent, however, as petrochemical producer Industries Qatar slid 1.3 percent.