(MENAFN- Gulf Times) Egypt's DOLLAR drought is driving last year's best-performing Middle Eastern stocks toward a bear market as TRADING slumps.
The country's benchmark index is having its worst start to a year since the Arab Spring revolt in 2011, with the average value of SHARES TRADED dwindling to a 16-month low. The gauge also crossed a technical threshold called the death cross that some investors interpret as the harbinger of a further slump.
Equities have tumbled 17% since a seven-year high in February as foreign investors struggled to repatriate their cash amid a dollar shortage that prompted the reappearance of a black market on Cairo's streets. The scarcity of greenback availability has persisted even after the country received $6bn of aid from its Gulf allies last month.
"My big concern is the relative lack of liquidity in the market," Simon Kitchen, a strategist at EFG-Hermes Holding Co, Egypt's biggest INVESTMENT bank, said by phone from Boston on Wednesday. "This is related to tightness in the foreign- exchange market, which can put the recovery in the economy and stock-market earnings at risk. There is further market downside if these issues are not addressed."
The EGX 30 dropped 2.3% yesterday in its seventh day of losses, the longest streak since October. The declines have pushed both its 50-day and 100-day MOVING AVERAGES below its 200-day mean, completing the death-cross pattern for the first time since 2013.
The retreat accelerated this week as MSCI Inc removed Telecom Egypt Co from its country gauge for Egypt, a move that Kitchen said raises the prospect for the index provider to downgrade the country from an emerging market to a frontier nation like Pakistan or Sri Lanka.
This leaves only three stocks in the MSCI Egypt Index, making it less diverse and potentially exacerbating capital outflows, EFG analysts wrote in a report Wednesday.
The value of SHARES TRADED in Egypt has plunged by about half to an average of 460mn Egyptian pounds ($60mn) a day in the past three months compared with the year-earlier period, according to data compiled by Bloomberg.
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