The financial crisis suffered by Dubai has had a severe impact on Arab markets. Egyptian stocks in particular dropped steeply in value, by more than LE56.5 billion in yesterday’s session alone.
The Egyptian stock market was yesterday in flux. The main index, Egx30, recorded a fall of 7.97 percent, the highest throughout the session, losing 507 points and standing at 5868 points on closing. This is considered the worst drop witnessed by the index for more than one year.
In a first official reaction of the Egyptian government, a senior official at the Central Bank announced that the bank has started to count all financial dealings between banks operating in Egypt and banks in Dubai, and denied allegations that Dubai World owes the AAIB bank USD700 million.
Investment Minister Mamdouh Mohey Eddin held a meeting yesterday to discuss the impact of the crisis on the Egyptian market, after which he announced that the impact will be limited, citing precautions adopted in the UAE, and in particular the Central Bank’s declaration that it will support those banks affected by the crisis and provide the liquidity required.
Egyptian purchases were not able to contain intensive Arab sales amid transactors’ fears. Foreign investors resorted to buying at the closure of the session instead of purchasing at its start. Enterprises manipulated approximately half of total transactions, which surpassed LE72 billion due to an ownership transfer deal worth LE71 billion, from Lafarge – through Orascom Golden Material stocks – to one of its funds.
Investors experienced minutes of horror at the opening of the session, when the index lost more than 420 points due to a drop in major stocks, especially those of Orascom Building, which plunged by 10 percent. Circulation of these stocks, as well as of ten other companies, was consequently stopped for half an hour at the beginning of the session.
On the other hand, the manager of the Egyptian stock market, Maged Shawqy, played down the impact of the crisis on the Egyptian market, arguing that economic engagement between the stock markets in Egypt and Dubai does not exceed 0.7 percent, and that yesterday’s drop comes as a logical consequence of a similar drop in international certificates of deposit at Egyptian companies registered in London’s stock market last Friday. Shawqy added that "Asian markets witnessed an increase in transactions, which is the signal of a potential market recovery through upcoming sessions due to indirect influence by Asian markets."
On another level, market experts and analysts agreed that the effect of the crisis on Egyptian markets will be short term, in light of recent moves to contain it. They were of the opinion that the markets will easily manage to overcome the problem.
Khaled el-Tayyib, board member at Pioneer Securities, said that Egyptian companies operating in Dubai all work in the field of brokerage, meaning that any effect they experience will be limited. He added that the impact on the Egyptian market is a result of the psychological aspect of the crisis, and predicted that the situation will get better during the next few sessions. This prediction was approved by Issa Fathy, managing director of Aman securities company. Moving to the exchange market, the crisis helped the US dollar to regain its power over other main currencies, a fact reflected in the value of the Egyptian pound against the American currency.
Abu Dhabi’s stocks plunged by 8.3 percent, while Dubai experienced a fall of 7.3 percent.
Reuters quoted Abdel Rahman Saleh, general manager of the government’s Finance Department, as saying that the government in Dubai "does not guarantee Dubai World’s debts," and that creditors will be affected by the restructuring of the group.
In Dubai, Copilas Dingh, chief analyst at Cellent Finance, stated that "Dubai’s untested financial system is now undergoing a test that will show how it can handle an international crisis, with parties that want to manipulate a field of unobvious rules".
Mohey Eddin Quronfil, head of funds administration at the Dubai-based al-Gebra Capital, said that Dubai will not be doing wrong if it fails to pay its debt installments, or even if it declares the bankruptcy of those of its companies which are not eligible for restructuring.
Translated from the Arabic Edition.