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Cablegate: Egyptian Stock Market Plunges

VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #0100 0221509
ZNR UUUUU ZZH
R 221509Z JAN 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7933
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0373

UNCLAS CAIRO 000100

SIPDIS

SIPDIS

STATE FOR NEA/ELA, NEA/RA AND EEB/IDF
USAID FOR ANE/MEA MCCLOUD AND DUNN
TREASURY FOR MATHIASON AND CONNOLLY
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON EINV EG
SUBJECT: EGYPTIAN STOCK MARKET PLUNGES

Ref: Cairo 3470

--------------------------
Global Sell-off Hits Egypt
--------------------------

1. (U) Following a decline of 2.1% on January 20, Egyptian stocks
had their weakest day in 18 months on January 21, when they plunged
4.2%, the largest one-day decline since July 2006. The sell-off
continued January 22, with the CASE falling another 3.29% toward the
end of trading. The three day loss (January 20-22) totals 10.44%.
On January 21, the market traded 81 million shares valued at LE 1.7
billion ($314 million), 23% above the average for the last 90 days.
Foreign institutional investors have been selling heavily in large
caps like Orascom Telecom, Orascom Construction Industries,
EFG-Hermes, Telecom Egypt and Commercial International Bank.
Orascom Telecom led the plunge on January 21, dipping 7.0% to LE
78.12 ($14.46). MobiNil followed that day, losing 6.8% to end the
session at LE 205.00 ($37.96). Domestic and Gulf institutional
investors also sold heavily in mid and small caps. The sell-off was
triggered largely by foreign institutional investors reacting to
falls across global markets.

2. (U) The Cairo and Alexandria Stock Exchange (CASE) was in the
midst of a rally that had been underway for some time, but had
accelerated in July 2007, when the Fed cut rates and foreign
investors began pouring into Middle Eastern markets, especially
Egypt's. Heavy trading followed the December 2007 announcement of
the sale of Orascom Construction to France's Lafarge (reftel). The
CASE hit an historic high on January 13 (reaching 11,035), prompting
local analysts to begin predicting a correction, as the Lafarge deal
had lead to overvaluing of all stocks in the Orascom Group,
including Orascom Telecoms.

3. (U) EFG-Hermes Investment Bank analyst Simon Kitchen told us
that he expects the CASE to continue downward for a while, but was
optimistic about market recovery. Egypt's macroeconomic indicators
are still strong, and high liquidity in Gulf countries, combined
with increased interest from Western investors in emerging markets
is likely to make Egypt a prime destination for foreign portfolio
investment in the medium to long term. Kitchen was especially
optimistic about the new "MENA" funds created by some large firms
(Schroeder's, T. Rowe Price). These funds will focus on diversified
large caps, such as the Orascom Group, and are expected to bolster
markets across the MENA region.
RICCIARDONE

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