By Abdel Kader Ramadan
Egypt’s stocks hit a 14-week low on Sunday, with the country’s benchmark index EGX30 index falling by 5.54 percent as investors panicked following Britain voting in favor of leaving the European Union on Thursday.
Analysts had predicted that the Egyptian stock market would face setbacks on Sunday. Mohamed Radwan, a Sales Manager at Pharos Holding for Financial Investments, expected Egypt’s bourse to see a “huge slump” in the wake of Britain’s vote.
The results of the British referendum came out on Friday with more than 50 percent voting to leave the EU.
Global financial markets plunged, the British pound tumbled as much as 10 percent against the dollar for the first time in 30 years after the referendum results were announced. Oil prices also dropped five percent at the end of trading on Friday.
The British vote also led to the resignation of Prime Minister David Cameron, who announced his intention to step down in October. The minister, who led the ‘remain’ campaign, said on Friday the country requires a new leadership to “stir the country to its next destination.”
Eissa Fathy, the managing director of a Cairo-based securities firm anticipates a “difficult day” as investors in Egypt will be greatly affected by the fall in global markets following Britain’s decision.
According to Reuters, the shock wave of Britain’s vote made European shares slide, wiping about 650 billion euros (USD 726 billion) from the market value of Europe’s listed shares .
The pan-European STOXX Europe 600 index fell seven per cent to 321.9 points, its biggest one-day fall since 2008, while the FTSEurofirst 300, Reuters reported.
US stocks also fell sharply, with investors turning to gold and US treasury bonds, both of which are seen as safe havens. Investors also avoided purchasing assets that involve higher risks, such as stocks and oil.
Fathy said that the trading of shares of some Egyptian companies in London’s bourse, including the Commercial International Bank (CIB) which constitutes the heaviest market weight in the Egyptian stock market, will contribute greatly to the slump.
The director of customer accounts at Okaz Securities Brokerage Ahmed Zakaria said that investors were “shocked,” especially that opinion polls held before the voting were in favor of remaining in the EU, which had initially relieved investors and prompted global stocks to surge.
Zakaria predicted the fallout of Britain’s vote to be similar the financial crisis in 2008.
Radwan pointed to the fragility in the Egyptian stock market, saying that the low trading volume will lead to a “fast and violent” slump, especially given the fact that the Egyptian market is in an already weak position.
The Egyptian stock market strongly declined in the last two trading sessions after CIB failed to sell its investment bank CI Capital to Beltone financial, the central bank decided to raise the interest rate by two percent, and fears of the repercussions of Brexit on the global economy spread.
Radwan expects the market to continue fluctuating over the next week.
Zakaria also noted that the Egyptian bourse records stronger declines, compared to other markets, during global crises, due to credit and margin trading problems which push investors to sell more than usual.
The decline in the Egyptian stock market may not persist for long, given that decrease in prices will represent opportunities for those who want to seize them, Fathy said.
Content from Aswat Masriya, editing by Egyptian Streets