MIDEAST STOCKS-Egypt drops further on FX worries, Saudi moves little
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DUBAI :Egypt’s stock market continued dropping early on Monday because of concern about the possibility of a “Big Bang” devaluation of the currency, while Saudi Arabia’s bourse traded near technical support.

The Egyptian index sank 2.6 percent on Sunday after strong U.S. economic data suggested U.S. interest rates might be hiked next month, putting further pressure on the Egyptian pound.

The index fell a further 0.7 percent in the opening minutes on Monday.

After Egypt’s two largest state banks launched savings certificates for Egyptian pounds with a high interest rate of 12.5 percent, there is speculation that this could be part of preparations to abandon a slow, managed depreciation of the currency and instead engineer a large, one-off devaluation.

Such an approach might be positive for the stock market in the long run by dealing decisively with a hard currency shortage that has overshadowed the market for years.

But it would be risky. It might be hard for the central bank to stabilise the pound at its new lower level, and it could well involve a period of higher domestic interest rates.

“Obviously, higher rates mean more pain to leveraged companies, higher required rate of return, and lower equity valuations,” Pharos Securities said in a note. “We are biased to conservatism and hence advise clients to remain cautious.”

Commercial International Bank dropped 1.7 percent and property developer Palm Hills Development fell 2.3 percent.

A few stocks that might benefit from currency depreciation rose. Alexandria Container and Cargo Handling, which could see more business if a weaker currency encourages foreign shippers to use its services, jumped 10 percent.

Telecom Egypt, which as a telecommunications firm is seen as a defensive stock, rose 1.1 percent.

Meanwhile the Saudi stock index, which closed 0.6 percent lower on Sunday in response to the U.S. interest rate threat, continued to hold technical support at its August low of 6,921 points. It edged up 0.4 percent to 6,948 points.

Petrochemical blue chip Saudi Basic Industries climbed 0.9 percent and insurer SABB Takaful added 4.9 percent. Saudi Printing and Packaging, which began tumbling on Thursday as a bubble in the stock burst, plunged a further 10 percent.

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