(MENAFN- Arab Times) Investors will be eyeing high-profile business and diplomatic visits in the coming week to see if they bear economic fruit and help sustain a rally that pushed Egyptian shares to 14-month highs on Tuesday.
They will also be looking to remaining second-quarter results to see if the rally can be supported by fundamentals.
Investors seeking stability after 1-1/2 years of political turmoil in Egypt have been heartened by the so-far smooth transition to a new government and billions of dollars in loans and aid delivered or pledged in the last four months.
The benchmark share index has climbed steadily for the last month on optimism that newly elected president Mohammed Morsy's efforts to bolster the ailing economy are paying off.
On Tuesday the index closed at 5,541 points, its highest since June 20, 2011. It is up more than 50 percent year-to-date.
Reverse
For technical analysts, its rise last week triggered a "large reverse head and shoulders pattern" formed by lows since May 2011, seen as signalling the start of an uptrend.
For those analysts, the index faces very strong chart resistance around 5,667 points, where it peaked twice in the second quarter of 2011, but the size of the pattern points the index up to around 7,000 points in the long term.
Until now the rally has been sustained by local retail investors. Analysts warn that for foreign investors to enter the market in force, the government will have to show it is prepared to take measures to deal with Egypt's deep economic problems, particularly its balance of payments and budget deficits.
"I think this little bit of euphoria will probably continue into next week, but ultimately the hard issues of the economy are going to come back," said Mike Millar, head of research at Naeem Brokerage.
He said local investors were behind this week's rally too. "I don't think that foreigners have been in this one, either. They're still on the sidelines waiting for things to settle down on the politics and get some direction on the economic policies."
The market could get a boost next week from a visit by senior executives from 48 US companies to Cairo starting on Saturday and by a visit to Europe by Morsy that begins on Wednesday.
Signs
"We'll look to see if there's going to be any more investment into Egypt. We'll be looking for positive signs of investment from both those trips," said Angus Blair, chairman of Signet Institute in Cairo, a think tank for the MENA region.
Analysts said investors were concerned that the government had yet to rein in its spending, particularly on energy subsidies, and that the Egyptian pound, at its current price of about 6.10 to the US dollar, was substantially and unsustainably overvalued.
Foreigners were "still worried about coming in then having a currency depreciation, and then getting hurt," said one analyst who asked not to be named for fear he would be viewed as talking down the currency.
Blair said a number of important companies had yet to release their second-quarter results, and that the market would also be looking out for these as well.
"We'll be able to see how things are," Blair said. "It could be an indication if the market has got a little ahead of itself in terms of earnings growth."
"The results so far have been coming in at slightly below expectations," he said.
This week's rally was sustained partly by news that Washington was close to a deal with Egypt for $1 billion in debt relief.
In the last four months, Saudi Arabia, Qatar and Jeddah-based Islamic Development Bank have lent or pledged to lend more than $5 billion to support Egypt's budget.
In addition, a technical team from the International Monetary Fund is due to arrive in Cairo in mid-September to resume negotiations on a $4.8 billion loan that Egypt has requested to help it overcome its financial troubles.
The rally was reinforced by a report that Qatar National Bank had hired an adviser on its planned purchase of NSGB, Societe Generale's Egyptian arm.
The buyout report sent NSGB's shares shooting up 26 percent in four days, and they are now trading up more than 100 percent year-to-date. Other banking shares also surged.
US Deputy Secretary of State Thomas Nides will on Saturday accompany a major American business delegation visiting Egypt, officials said, as speculation of a major debt cancelation agreement grows.
Nides will join the US Chamber of Commerce and more than 100 executives from American companies aiming to promote private sector development in Egypt, the State Department said in a statement Tuesday.
The announcement came a day after the New York Times reported that the United States was weighing a deal with Egypt's new rulers to relieve $1 billion worth of debt.
State Department spokesman Patrick Ventrell said he thought discussions about the debt deal were "ongoing" but said the trip was more closely tied to Secretary of State Hillary Clinton's visit to Egypt in July, which was heavily focused on the nation's economy.
"Clearly Egypt needs to get its feet back on the ground economically to push forward," Ventrell said, highlighting the need to help businesses, but noting that the US is "looking at ways we can give direct financial assistance."
Egypt, which has seen its economy worsen since Hosni Mubarak's overthrow in February 2011, asked last month for a $4.8 billion loan from the International Monetary Fund, which in turn urged economic reforms.
After meeting newly-elected Egyptian President Mohammed Morsy in July, Clinton reaffirmed Washington's "strong support" for democratic transition following the ouster of Mubarak, a longtime US ally.
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