By Stefan Wagstyl, Barney Jopson and Jonathan Wheatley
Published: February 11 2011 The Financial Times
There was a palpable surge of relief in financial markets as Egyptian president Hosni Mubarak resigned.
London-listed Egyptian stocks, the country’s most widely traded instruments, had tumbled after the president refused to step down on Thursday night. But they rallied on Friday in the run-up to the announcement that he would give in to protesters’ demands.
Orascom Telecom was up 0.8 per cent in late trading, but Orascom Construction’s post-resignation surge was reversed by profit-taking that left it down 0.7 per cent.
In another sign of nerves being calmed, the cost of insuring Egyptian sovereign debt tumbled to 320 basis points having traded as high as 365 bps earlier in the day, traders said.
Political unrest in Egypt has brought intense volatility, exacerbated by the fact that Cairo’s stock market has been closed since the crisis began and local banks have been mostly shut.
Andreas Kolbe, credit strategist at Barclays Capital, said: “The volatility we are seeing at this stage is closely related to the news flow on the political side.”
The Egyptian crisis has disturbed other financial markets in the Middle East but, after an initial flurry of falls last month, markets have stabilised.
As one Lebanese banker noted, investors had separated the region’s states into three groups – democracies (for example, Turkey) at little contagion risk; strong autocracies (including Saudi Arabia) that are also at little risk; and “in-between” countries that could be at risk of turmoil because leaders do respond to popular pressure. The vulnerable states might include Jordan and Yemen and a few others that barely figure in financial markets.
Beyond the Middle East, markets have seen bouts of anxiety, mainly reflected in the rise of the oil price. While Egypt is not a significant exporter, it controls the Suez Canal, which carries much of Europe’s oil. The Brent futures price, which hit $102 a barrel early in the day, fell sharply to $100.43 before trading up to $101.31 later.
However, the premium over West Texas Intermediate, the US benchmark, remains high at around $15, reflecting much greater investor concerns about European than US supplies.
Mohamed El-Erian, chief executive of Pimco, told beyondbrics that markets found it difficult to assess the possible systemic impact of the Egyptian crisis since the country had relatively limited direct economic links with the rest of the world.