Gedanken zur Ägypten-Krise

Sharat Dua and Akhilesh Baveja, MENA and Africa Portfolio Advisors, comment on the current crisis and Charlemagne Capital funds' exposure to the country.

The situation in Egypt has become significantly uglier in the past week, with the interim Government and Egyptian Army deciding to forcibly close the protest camps that had been occupied by supporters of ousted President Morsi since his overthrow on 3rd July. Concrete facts and figures are difficult to come by, but it is clear there has been significant loss of life – amongst protestors, security forces, and others caught up in the chaos. The country once again finds itself under Emergency rule. Neither the military nor the Muslim Brotherhood seem prepared to compromise – the Brotherhood protestors were adamant they wanted President Morsi reinstated, while the military is painting the protestors as terrorists and aggressors, and seem intent on crushing the Brotherhood (they are considering banning the organisation again).

While the West looks on in horror, it has resisted taking any concrete action against the interim Government (e.g. suspension of aid). The UAE, Saudi and Kuwait on the other hand have backed the Egyptian military’s actions, and have provided both financial and in-kind support. As a result the currency has strengthened significantly in the black market, while the official rate is also below 7 once again. The stock market has been remarkably strong for the past 6 weeks, driven by local investors hoping that the technocratic interim Government would be able to drive through economic reforms that President Morsi had been unable to. Even today it is clear that a large proportion of educated, middle-class Egyptians, responsible for driving local investment, believe that the country is in a better position than 2 months ago.

We continue to observe the situation in Egypt closely. We are alarmed at the polarisation of the country, and at the apparent return of some of the more unsavoury elements of the old establishment. We are also concerned that last week’s events will breed further violence, as Islamist protestors decide to fight back (although we believe the Muslim Brotherhood itself will remain non-violent, it is not possible for the organisation to control all its supporters).

We do not hold any Egyptian exposure in our Global or EMEA portfolios, and retain underweight positions in the core regional funds. The Magna Africa Fund has a 4.7% exposure to Egypt, relative to a benchmark weight of 8.2%, while the Magna MENA Fund only has 1% invested in Egypt, relative to a benchmark weight of 3.4%. We do not expect the Egyptian unrest to impact other MENA markets, which have continued to perform very strongly this year compared to Global Emerging Markets.

Please click on the link below to access the report in PDF, Egypt - current thoughts on the crisis.
                       
Egypt - Current thoughts on the crisis