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News Analysis: Brexit stirs shake and slump in Egypt stock markets

by Mahmoud Fouly, Ahmed Shafiq

CAIRO, June 26 (Xinhua) -- Britain's exit from the European Union has rocked the Egyptian stock market, causing a surprising slump in major indexes, experts said Sunday.

"All experts expected the negative consequences of Britain's exit from the EU on the financial market and the sharp decline of stock markets and exchange rates," Mohamed Farid, head of Dcode Economic and Financial Consulting Company, former adviser to finance minister, former EGX vice-chairman, told Xinhua.

However, the experts said, what was not expected is that it could cause the Egyptian stock market as much as 5.5 percent decline.

"We expected it to vary from 3 percent to 3.5 percent at most," he said, adding that "anyway, the decline was expected in the first place."

The Egyptian bourse lost about 16 billion pounds (about 1.8 billion U.S. dollars) in the first minutes of Sunday's session prompted by the negative effects of Britain's exit from the European Union (EU) on the world stock markets.

Minutes later, the market capital kept going down to hit 376.3 billion pounds after dozens of stocks fell by more than 10 percent, which is the maximum drop level allowed in a single session, making the bourse suspend.

"We are now in a period of sharp changes worldwide, including Britain's exit from EU and the relative amendments of agreements, inter-Europe trade, world trade, etc. It is a period of uncertainty," Farid explained.

Amid such conditions, Farid added, the first thing an investor does is withdraw all his investments and concentrates them in financial tools to be reassured until things get better.

The expert believes that Egypt theoretically should have not been that strongly and directly affected, "because its effect is related to the decline of the currencies of euro and pound sterling against the U.S. dollar."

"The issue also affects Egypt's prospect exports to the EU region...things will be clearer in the near future," he expected.

To avoid more collapse when currencies sharply decline, Farid said the Central Bank of Egypt (CBE) should devaluate the Egyptian pound to face the euro decline against the dollar, or link it to a basket of currencies and not only the dollar.

Meanwhile, Mohsen Adel, financial expert and also vice-chairman of Egyptian Association for Finance and Investment, said Britain's exit from the EU put Egypt's exchange market in the face of a group of challenges that should be immediately and accurately studied and take the necessary procedures and alternatives to avoid the negative consequences of the issue.

"The trade relations with the euro and Britain will be affected after the recession of the euro and pound sterling. The decline of these currencies will lead to a similar decline in the chances of Egypt's exports to the European markets due to the decline of its currencies against the dollar," he clarified.

Consequently, he said, this will clearly increase the growth chances of European and British imports to Egypt.

Adel suggested that the variety of Egypt's foreign currency reserves amid the ongoing changes must be carefully dealt with, bearing in mind that the Chinese Yuan will soon be added to the basket of main currencies at the IMF.

"This requires a thorough study to include it (Yuan) in the currencies related to the Suez Canal corridor and hence to include it as part of the basket of currencies at the CBE," he recommended.

After Britain's exit from the EU, Adel said, recession of world trade is expected; meaning that Egypt's revenues from commercial exchange, whether related to exports of shipping traffic will decrease.

"So, these expectations should be studied and alternatives should be found," he stressed.

The expert noted that investments of Arab Gulf countries are the largest source of foreign investment in Egypt, while Britain comes second.

"This should be taken into account...we currently notice Gulf gradual exit from Britain, so Egypt should have a plan to attract part of these Gulf investments and this requires the presence of incentives to the business environment in Egypt," Adel proposed.

The quick effects of Britain's exit from EU will be mainly in the stock markets and the currencies exchange rates due to the global changes, but the consequences related to trade and investment will come in the intermediate and long-run, he said.

"The Egyptian government should react swiftly to make bilateral trade deals with Britain to get better conditions for the time being, as there will be a competition in the coming period on making trade and investments deals between many countries and Britain," he concluded.

The result of the British referendum was met by an immediate fall in share values on world stock market, mainly Europe as the vote to leave the EU sent shock waves across European stock markets.

The result came as a surprise to European stock markets. As the Euro Stoxx index plummeted by 8.62 percent, France CAC 40 down by 8.04 percent, FTSE 100 by 3.2 percent and Germany's DAX index 6.82 percent.

Meanwhile, Spain's IBEX-35 plunged 12.35 percent at Friday's closing time, a record one-day drop in its history.

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