The investment case for Egypt will be weak whatever the outcome is today, says market strategist

Expect the Egyptian stock market and the pound to remain under pressure regardless of what happens after the military-issued deadline for President Mohamed Morsi to resolve the political situation in his country expires in less than half an hour, says ETX Capital market strategist Ishaq Siddiqi.

With the country crippled economically even before recent events kicked off – inflation has been over eight per cent since Morsi took over and foreign exchange reserves have halved since December 2010 – the investment case for Egypt is weak, he says. And given the current situation, it’s highly unlikely that the $4.8bn deal Egypt was hoping to make with the IMF will now happen.

The situation is quickly escalating, with Morsi saying earlier that “the price of preserving legitimacy is my life” and the army taking control of the building of the state television.

Whatever the result, Siddiqi says the situation for Egypt economically looks bleak.

The escalation of violence will also underpin fears over supply/disruption of oil as around 5 per cent of seaborne oil passes through the Suez Canal.

And, when assessing the impact on Egypt’s neighbours, Libya and Sudan will be watching the oil situation closely but avoid interfering; the rise of insurgence from the Palestine border will worry Israel as Morsi’s Muslim Brotherhood is closely affiliated with Palestinian Hammas. It’s likely Israel will ask the US to step in if the situation deteriorates to the point where we see an uprising of insurgency in Egypt.

On the other side, Syria’s Assad will most probably cheer the removal of Morsi as both have been at odds with each other with Morsi calling for a holy war. It’s unlikely we will see a flare up of another Arab spring but economically speaking, this political instability couldn’t come at a worse time for Egypt.