Egypt Market Plunges After Deadly Soccer Riots

Published February 2, 2012 10:54AM (EST)

CAIRO (AP) — Egypt's benchmark stock index fell plunged within minutes of the start of trade Thursday as deadly soccer riots the night before left 74 dead and rekindled fears of fresh instability akin to the unrest that has battered the country and its economy in the year since the ouster of Hosni Mubarak.

The benchmark EGX30 index shot down 4.58 percent to 4,473 points by 10:45 am local time before paring losses. By 12:30 p.m., the index was down 2.5 percent, at 4,570 points.

The declines halted a rally in the market over the past week that had been fueled by newfound optimism after the peaceful passing of the one year anniversary of the Jan. 25 uprising that pushed Mubarak from power. Investors had also found cause to cheer in the convening of the country's first post-Mubarak parliament — a legislature that was seated after Egypt's freest elections in decades.

But the riots by football fans late Wednesday in the Mediterranean city of Port Said reignited simmering criticism of the country's military rulers, with witnesses saying the police stood idly by while the violence broke out after the match. Parliament convened an emergency session — a move also mirrored by the Cabinet.

"There are a lot of fears, a lot of concerns, a lot of potential clashes," said Mustafa Abdel-Aziz, senior broker with Mideast investment bank Beltone Financial's brokerage division. "But we're seeing the market react much better than it should" given the night's violence.

Abdel-Aziz said that the early sell-off triggered buying interest, with investors stepping in to snap up deals.

In a market that ended 2011 over 45 percent below its level at the end of 2010, the recent gains have offered a measure of optimism as the country pushes ahead with a rocky transition to democracy that has been defined by continued protests and a growing mistrust of a military that had been hailed at the start of the uprising as heroes.

The violence in Port Said, however, reflected how fragile the gains could be at a time when Egypt's economy is reeling from the overall effect of the uprising. The protests and associated violence have hammered the country's chief foreign currency sources — foreign investment and tourism.

Meanwhile, Egypt's net international reserves were down 50 percent year-on-year by the end of December, leaving wide open questions about how the country will raise new cash to bridge a widening deficit and worries over the balance of payments. It is now discussing with the International Monetary Fund a $3.2 billion loan.

The Finance Ministry on Wednesday said it would secure $1.1 billion in aid from the European Union and the World Bank. While Egyptian media have reported the loans as a done deal, an EU financial official in Cairo told The Associated Press that the EU portion of the aid was predicated on Egypt securing the IMF loan.

For investors, the macroeconomic concerns appear to have been factored into their investment strategy, said brokers.

But what's "not quantifiable is the extended tension between the police, the protesters and the army," said Abdel-Aziz. "Definitely, if there's an extended tension in this relationship, you could see another wave of selling."

By Salon Staff

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