Egypt ETF (EGPT) In Focus: The Economic Consequences Of Revolution

by on July 18, 2013 | ETFs Mentioned:

Two years after removing Hosni Mubarak the Egyptian people have once again called for the removal of their President, Mohammed Morsi. Citing his and the Muslim Brotherhood’s promoting religious law in the constitution, the military deposed Morsi in early July, replacing him with the Chief Justice of the Supreme Constitutional Court. While this change of power plays out, the Egyptian economy has taken a massive hit and the Central Bank is scrambling to maintain a functioning currency. Below we take a look at the revolution timeline to see what events triggered economic changes as well [check out 25 Wild ETF Charts From 1H 2013].

The End of the Arab Spring

January to February, 2011 - Egyptians stage nationwide demonstrations against President Hosni Mubarak. The price of the Egypt Index ETF (EGPT, C) drop like a stone for the first time since it’s inception.

egyptFebruary 11 - Mubarak steps down and turns power over to the military as the price of EGPT makes a quick and full recovery.

February to October - Tensions once again run high as a number of small protests end in violence leading up to the first parliamentary elections of the new government. Both the Egyptian Pound and ETF slip during this intermission, leading the Standard & Poor’s rating agency to lower Egypt’s credit rating from B+ to B [also see Emerging Market ETFs: Biggest Winners & Losers].

November 28, 2011 to Feb 15, 2012 - Egypt holds multistage parliamentary elections; the Muslim Brotherhood wins nearly half the seats in the lower house, with ultraconservative Salafis take another quarter. In the upper house, Islamists take nearly 90 percent of the seats. EGPT sees a small price bump at the beginning of election season.

May 23 - The first round of voting in presidential elections leave Morsi and Ahmed Shafiq, the prime minister under Mubarak, as the top two finishers. The weeks leading up to the primary elections see huge growth for EGPT as international investors see promise in the stability of Egypt.

Looking Up With Morsi

June 16 - On election day Morsi wins with 51.7% of the vote and is sworn into office only two weeks later [also see Checking In On Best and Worst Performers From 2011].

July to October - After taking another dip right before Morsi took office, EGPT once again recovers and begins a rally which lasts into late fall before peaking. During this time, Morsi has removed all top military officials from Mubarak era and drafted a new constitution.

EGPT - Exchange Traded Funds - ETF Price Chart for Egypt Index ETF Market Vectors

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November 19 - Members of liberal parties and Egypt’s churches withdraw from the 100-member assembly writing the constitution, protesting attempts by Islamists to impose their religion on the country.

Nov. 22 - Morsi decrees greater powers for himself, giving his decisions immunity from judicial review and bans the courts from dissolving the constituent assembly. The move sparks days of protests and investors pull out of EGPT in droves.

Nov. 30 -Islamists in the constituent assembly complete the draft of the constitution in a rush, announcing it will come into affect December 15th [see aslo Why It's Time To Pay Attention To Europe Again].

Returning to the Streets

December 4 - More than 100,000 protesters march on the presidential palace, demanding the cancellation of a new constitution. Violence breaks out between protesters and government supporters the next day.

December 22 - Egyptians vote in the constitution, with 63.8 percent voting in favor. Turnout is low.

December 24 - S&P once again downgrades Egypt’s long term credit rating, now valued at B- [check out the Ultimate Guide To Africa ETFs].

^EGPUSD - Forex Price Chart for Egyptian Pound-U.S. Dollar

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December 29 - The Egyptian Central Bank announces that foreign reserves is at $15 billion and have fallen to a “critical minimum” and tries to stop a sharp slide in the value of the Egyptian pound. It now stands at just more than 7 to the dollar, compared to 5.5 to the dollar in 2010.

January 25, 2013 to April – Hundreds of thousands hold protests against Morsi on the 2-year anniversary of the start of the revolt against Mubarak, causing a ripple affect. Protests rage in Port Said, Alexandria, and other cities for weeks, with dozens dying and thousands injured. Both the Egyptian Pound and ETF continue to suffer in the chaos.

May 9 - S&P takes another crack at Egypt’s long term debt, lowering it to CCC+ [also see Dividend ETFs: 3 Things To Consider].

June - Millions of Egyptians demonstrate, calling for Morsi to step down. As these protests finally start to gain traction in Egypt by the end of the month, the price of EGPT once again climbs as investors see a lucrative growth opportunity.

The Military Steps In

Cairo, EgyptJuly 1 - Large-scale demonstrations continue, and Egypt’s military gives the president and Muslim Brotherhood two days to resolve their disputes with the citizens, or it will impose its own solution: replacing Morsi with an interim administration, canceling the Islamist-based constitution and calling elections in a year. Morsi delivers a late-night speech on the 2nd in which he pledges to defend his legitimacy and vows not to step down [see our ETFdb Africa Centric Portfolio].

July 3 - Egypt’s military chief announces that Morsi has been deposed, to be replaced by the Chief Justice of the Supreme Constitutional Court, Mansour Adly, until new presidential elections while Muslim Brotherhood leaders are arrested. Much like the time following Mubarak’s ousting, the Egyptian Pound and ETF respond by rallying higher.

Looking Forward

As the government continues to work towards stability, investors should expect very little of that from EGPT and the Egyptian Pound. The economy was shattered during the Arab spring and has not had a chance to recover, with outside help only able to do so much. As citizens return to normal life, analysts expect the country will return back to prosperity, but as long as protesting and temporary governments remain a theme here, there will be little long-term growth potential for anyone besides day traders.

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Disclosure: No positions at time of writing.