Vigilant Freedom

UPDATE 16/02/2011: EGSE is further delaying re-open by another couple of days, target re-open 18/02/2011.
UPDATE 13/02/2011: EGSE is to re-open on Wednesday (16/02/11) to allow for a more orderly opening delaying this Sunday’s initial reopening session by three more days.

In what is definitely a political turning point in the Middle-East, Egypt’s past president, Hosni Mubarak, has agreed to step down in the face of public outcries and demands for political reform. The ongoing political shift in North Africa, that begun in Tunisia, is now spreading over to the Middle East. Talks of reform in Sudan are picking pace and even Saudi Arabia is under the sway of what might prove to be a decisive move towards a more open society.

However, cautious observers have noted that the initial joy of public demonstrations will require both substantive development and patience in order to reliably deliver strong and sustainable economic development. The price of freedom is eternal vigilance and this is all the more so when a society enters its first days of democracy.

The Market Front

EGX30 Market performance up to January 27th

The EGX 30 closed on 27/01/2011 but should be re-opened this Sunday 13/02/2011

Markets and money flows across the Middle-East have, to a certain extent, already priced in some of these developments. The EGX30, Egypt’s benchmark index, identified a radical shift in local sentiment around January 5th and carried through a corrective stance ahead of public demonstrations that begun on January 25.

The Egyptian Stock Exchange closed on January 27th following significant daily routs but is planing to re-open this Sunday the 13th of February with the newly stabilised domestic situation.

There were reports, from both Tunisia and Egypt, that a number of suspect large foreign currency and gold bullion outflows were occurring prior to the explicit political action. A sign, perhaps, that certain sections of the society had already accepted the ongoing transition and which may prove supportive, through the implicit acceptance of transition by the old guard, to any new form of political leadership. Also, in support of the nascent free economy, money outflows from smaller individual accounts have been minor compared to initial expectations. Again, a potentially positive sign that democratic development may occur upon a sound monetary base.

As for the market correction on the EGX30, this need not be, necessarily, a cause for alarm. Indeed, this may prove a supportive factor as these societies re-emerge both politically and economically with the potential for strong market support on the base of an already corrected price base.

“The volatility in Egypt may actually be advantageous to more opportunistic players who have a greater appetite for risk,” said Andrew Tarbuck, a corporate partner at the Dubai law firm Latham & Watkins. “Potential Egyptian target companies may be well priced for those buyers willing to take on more risk, although potential targets may prefer to ride out the storm in the hope of a higher valuation.”

Freedom: Both Free And Expensive

I’m taking a slight pause here to reflect a little bit away from the financial situation over to the road ahead. There is strong hope currently out there that Egypt’s reforms may prove long-lasting but, as mentioned previously, this does require a lot of hard work, with the hardest steps still ahead. Employment and industrial stabilisation will be a core factor but even democracy does not produce a magic panacea to unemployment figures. This remains as much a challenge for the new political regime as for its newly freely constituent population base.

The Iconography of Liberty

Egyptian Liberty Photo Montage

Delacroix 'La Liberté guidant le peuple', John Moore for Getty Images and Ed Ou for the New York Times.

Markets will support Egypt’s new advances. Liberty is, after all, a core base upon which to build a rational and efficient market.

Efficient markets require low-barriers to entry, the rule of law to limit the abuse of irrational arbitrary power, and a clear set of property rights which are both transparent and enforceable upon all market participants. All these factors can be supported by open democracies but still require both hard work and caution against the abuse of democratic fervor towards seemingly irrational goals.

Here’s to hoping that Egypt maintains its course, boldly and strongly, steered in the right direction.

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