Out of Egypt's Chaos, Opportunity for Investors?
"The time to buy is when there's blood in the streets," legendary financier Baron Rothschild declared more than a century ago. The same principle could hold true for times when protesters, police and the army are taking to the streets of Egypt.
The Market Vectors Egypt Index ETF (EGPT) tumbled about 15% in the days following the outbreak of political chaos in the country. But it posed a sharp rally of nearly 8% on Monday as investors regained some confidence.
While plenty of doomsday scenarios are circulating, a more levelheaded look at Egypt suggests that the sell-off could provide a good entry point for investors. Its economy is growing fast and has plenty of room to run. And while apocalyptic predictions prevail, the changes that are likely to be ushered in may in fact help the country's development.
A More Moderate Track Ahead?
With a growth rate of about 6% in 2010, Egypt's economy outpaced all the Gulf states except Qatar, and economists polled by Reuters at the end of last year predicted average gains of another 5.4% in 2011. With a per capita GDP of $2,270 in 2009, Egypt has plenty of room to rise as its economy plays catch-up. Certainly, there's reason to think this process is already well under way: Per capita GDP has roughly doubled from $1,041 over the past five years.
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Most headlines, meanwhile, have focused on the possibility of the country slipping into extremist hands if the regime of dictatorial President Hosni Mubarak is displaced. Often mentioned as a contender for power in a post-Mubarak scenario is the Muslim Brotherhood, the country's largest opposition party, which advocates a return to Islamic law.
But the country has better odds of taking a more moderate turn that could boost commercialism. The secular, urbane Mohamed ElBaradei -- the former U.N. International Atomic Energy Agency head and secular democratic opposition leader -- is more likely to emerge as the new face of Egypt than the leader of a radical group.
And while fears of extremist groups taking power are getting more media attention, the bulk of Egypt's population is showing significantly warmer feelings about the U.S. over the last few years.
In 2007, only 11% of Egyptians viewed U.S. influence on their country as "mostly positive," while 59% said it had a "mostly negative" impact, according to a BBC poll. But in June 2009 -- the first survey after President Obama delivered his high-profile speech in Cairo -- positive opinions about U.S. influence had soared to 45%, with negative views at 29%. That puts Egyptian attitudes about the U.S. in the same league as those of the British or French.
The Egyptian stock market, meanwhile, remains cheap. Its trailing price-to-book ratio is approaching levels not seen since 2003, and is well below its average over the last decade. The chaos engulfing Egypt, in other words, provides patient investors with a good opportunity to buy.
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