Egypt's benchmark stock index tumbled over 3 percent yesterday, pulling the market lower for a second consecutive day as investor worries mounted that an investigation into the head of a leading Mideast private equity firm signaled a major widening in anti-corruption probes.
The Egyptian Exchange's benchmark EGX30 was off 3.2 percent by 1:15 p.m. Cairo time, building on the previous day's 3.43 percent decline. The drop pushed the index's year to date losses to over 30 percent - a clear reflection of the crisis of investor confidence confronting the Arab world's most populous nation in the wake of the uprising that ousted former President Hosni Mubarak.
Brokers said the drop was fueled by authorities' decision to ban Ahmed Heikal, the chairman of Citadel Capital, from traveling abroad and a decision late last week by an Egyptian government agency to rescind preliminary approval to sell 20 million meters of land to the Egyptian Resorts Company.
One of ERC's board members is already under investigation for alleged links to violence against the protesters in the initial days of the uprising. "It's clear people are panicked because of these decisions," said Khaled Naga, a senior broker with Mega Investments.
Egypt's new military rulers and civilian authorities, under pressure from protesters to move forward more quickly with pledges to hold accountable former regime officials and businessmen seen as benefiting from links to Mubarak and the then-ruling National Democratic Party, have stepped up investigations against these individuals.
In the span of about a week, authorities have ordered Mubarak detained in hospital, placed his two sons in detention in Cairo's notorious Tora prison and charged a former prime
minister and two other ministers with corruption.
Those moves have largely been welcomed as evidence of political reform.
But the cozy links between the regime and top businessmen has also sparked worries that the investigations could affect some of the country's blue chip companies.
Economists and analysts say that the rampant corruption in Egypt under Mubarak meant that success in business involved having to cozy up to the regime.
While there needs to be a reckoning, it must be within certain bounds so that the broader economy is not affected, economists said.
"Instead of going after every businessman, they should be much more mindful of fixing the system so that it becomes more transparent," said John Sfakianakis, chief economist with the Riyadh, Saudi Arabia-based Banque Saudi-Fransi, adding that the new Egyptian government cannot simply "react to popular sentiment" calling for broader crackdowns.
They should be looking at the system instead of the actors.
The system was corrupt," he said. The order barring Heikal from travel, announced last week at roughly the same time that a government agency rescinded a deal to sell 20 million meters of land to ERC, appeared to be cases in point of how such allegations of cronyism could impact the market.
The stock market's big board was awash in red. Of the 181 listed companies, 172 were posting losses, according to the exchange's Web site. Citadel's shares were down 9.59 percent, while investment bank EFG-Hermes saw its shares tumble 9.9 percent, according to information on financial data Web site, Zawya.com.
Heikal, Citadel's chairman, had been a managing director at EFG before founding the private equity firm and the investment bank's shares appeared to be taking a beating in part because of his prior links to the institution.
EFG, in a statement filed with the Egyptian Exchange, also said that its brokerage head, Sherif Cararah, had decided to resign effective June 30. The statement did not provide a reason.AP