Egypt shares downgraded as violence escalates

NOAH Capital Markets has downgraded its outlook on Egyptian shares from neutral to “sell”.

This comes as violence erupts again with Egyptian security forces moved in to clear two protest camps in Cairo occupied by supporters of deposed president Mohammed Morsi.

Estimates of fatalities vary wildly, with the interior ministry denying any deaths were caused by forces firing live ammunition and the Muslim Brotherhood claiming more than 800 are dead. Egypt has said traffic in the Suez canal is “secure and safe”.

Emad Mostaque, strategist at NOAH, said:

We moved neutral Egypt on July 3rd, since which the EGX30 is up 4% and our preferred picks Orascom Telecom (GDR) and Transglobe are up 16% and 7% respectively.

However, we now believe that things in Egypt have the strong potential of getting much worse, pushing through the positive aura that has comforted local investors hoping of a business-friendly environment and no Muslim Brotherhood in combination with pressured fundamentals….

Going forward we will clearly see riots and likely an attempt by the Muslim Brotherhood to take Tahrir square as the only place they could legitimately say the Interior Ministry has no mandate to clear them from….

For perspective of how bad it could get, the EGX 30 is up 57% from its end of 2011 low with the political situation even muddier than that point and a significant portion of the populace marginalized and increasingly angry.