Economic experts voiced fears that the Egyptian stock exchange may decline and that investments may flee Egypt if Muslim Brotherhood (MB) leaders facing a military trial are convicted and if their assets are frozen. They also said that their releases will boost the stock market. The companies frozen upon the attorney general"s decisoion are 23 companies. A ruling is expected to be issued on Tuesday, Feb, 26th, 2008.
Economist Dr. Ahmed Al Nagar confirmed that the stock exchange is affected by any situation in the political landscape. If investors feel that there is any kind of political instability that may affect the stock including any possible confrontation between the regime and any political opposition faction, buying shares declines. This is because the investor buys a future profit which can only be attained with the help of stable political situations.
As for issuing a conviction against MB leaders in the military case, the effect was huge when the decision of referring them to the military court was issued. Extending seeing the case for a year may make the effect little in the short run but it will snowball as confrontations may aggravate during the coming elections.
As for issuing rulings of freezing MB assets, the Egyptian economist said that the risks will be limited because these companies are owned by companies and aren"t tied to the stock market. The effect will be huge on owners and it would have been destructive had it been linked with the sock market.
However, freezing the assets will have a negative impression on investors. If the investor found his success tied to political accord or disaccord with the regime, this will make him flee the country.
If the regime decided to surprise us through issuing releases for the MB leaders, in a bid to improve its distorted image all over the world, this will definitely have an immediate and good effect on the stock market as trading will increase and investments will flock into the country because criticisms against the regime will sharply drop due to these releases.
Capital is Coward
Salah Abdullah, the editor of the economic page in Al Wafd newspaper, confirmed that:" The capital is coward and is always seeking safety. Any political tension will make investments flee. When tensions happened in Iraq and Kuwait in the wake of the US war on Iraq , investments fled to Egypt and left these regions .
In early January 2007, almesryoon.com spread a rumour that affected the stock market. It reported that 21 billion pounds fled the Egyptian stock market because of security harassments practiced by the regime against MB businessmen and after the attorney general"s decision of freezing their assets.
In addition to late August rumor about the health of the president which had a bad effect on the stock market and drove foreign investments out of the country and some brokerage companies stopped giving loans to clients for fear of any possible political turmoil had this rumour been true.
This confirms that there is a close link between the capital market, international stock market and political stability that may encourage or discourage investments in the region and may help of frustrate the economic growth. Investments in the stock market seek profit which is tied to political stability.
The latest incidents in south Lebanon had an effect on the Arab stock market taking its toll even on the Palestinian stock market and investments fled at that time to Egypt because it was stable.
Concerns over possible stock drop if MB leaders convicted
Abdul Hafez Al Sawi, an economist at the Third World forum agreed with the view that investments may flee Egypt due to the political situation. "Although Egypt is facing wars or coups, but international economic reports describe the situation in Egypt as unsuitable for investment because of the spread of corruption and bureaucracy in various state sectors and because Egypt is not a state of the law. Referring civilians to the military court is illegal and unconstitutional plus. The last constitutional amendments gave the president right to refer civilians to the military court. This creates an unhealthy political climate for investments.
Freezing the assets may make foreign investors flee lest the regime ties them with the convicted critics. Investments seek profit anywhere not loss and risks. Economy and political stability are two sides of the same coin.
Al Sawi cited 911 attacks after which investments fled from America to Europe and Arab countries.
Asked about linking the stock market to political disagreements, he said that:" Investments can"t go to Pakistan for example under the current internal political disputes that made Pakistan in a state of chaos".
Investors seek a long-term suitable climate. Any fear of instability makes investments escape.