* First election since overthrow of Hosni Mubarak
* Stocks had fallen to lowest since 2009 last week
* Fears of funding crunch keep foreign investors away
(Adds fund manager comments)
By Tom Pfeiffer and Carolyn Cohn
CAIRO, Nov 29 Egypt's benchmark share
index jumped 5.4 percent on Tuesday, buoyed by smooth
voting in a parliamentary election, but foreign investors said
they were waiting on the sidelines for an end to political
turmoil and a budget crisis.
Egypt is scrambling for foreign help to fill a widening
budget deficit and foreign reserves are sliding as the
government tries to support the country's currency.
A showdown between police and protesters demanding an end to
army rule killed 42 people last week and the interim government,
which had been lobbying to secure a $3 billion International
Monetary Fund financing package, quit.
The violence was a setback for the army generals who have
pledged to steer Egypt to democratic civilian rule after a
popular uprising ousted President Hosni Mubarak.
"At the moment we are being very careful. We just want to
stand back," said Raj Morjaria, a partner at London-based
private equity fund Aureos Capital. He said Aureos was unlikely
to invest in Egypt before 2013.
Egypt's benchmark share index has tumbled 47 percent in 2011
as the ruling generals grapple with climbing food prices, labour
strikes, dwindling police morale and fears of growing disorder.
Foreign investors dumped Egyptian securities during the
uprising and their stake in the country has continued to decline
as they opt not to roll over maturing treasury bills.
Most of the equity buying on Tuesday was by local investors,
traders said. The market was closed for the election on Monday.
The share index slid to its lowest since March 2009 last
week as protesters demanding an end to army rule clashed with
police, leaving 42 people dead.
Yields on Egyptian dollar-denominated bonds soared close to
7 percent, a level not seen since March.
"It's going to take a long time and the market will get
cheaper than many people think as we go through this huge
transition," said Ashok Shah, chief investment officer at London
It was too early to make investment calls on Egypt, he said,
but there were positive signs amid a murky outlook.
"The return of political stability will kick off the
investment cycle, attracting money from the GCC (Arabian Gulf)
area," said Shah.
VOTE FOR DEMOCRACY
John Bates, head of fixed income at Silk Invest London,
which holds Egyptian treasury bills, said there would be bumps
along the road for Egypt.
"We think if you can see through the current unrest, what's
happening is the growth of democratisation in the country," he
said. "We think that's positive in the long run."
Voters thronged polling stations in Cairo, Alexandria and
other cities on Monday in the first election since the uprising
"Investors were quite pessimistic that the election might be
postponed or canceled," said Mohamed Radwan, the head of
equities at Pharos Securities. "There will definitely be some
violations but the overall mood is focusing on the fact that
this election was secure with a strong turnout."
Among the most traded stocks on Tuesday, Commercial
International Bank soared 9.5 percent and Orascom
Construction gained 4.4 percent. Ezz Steel
jumped 9.9 percent.
The smooth start to polling failed to stop the Egyptian
pound slipping against the dollar. It was bid as weak as 6.0036
to the U.S. currency, its lowest in almost seven years.
The government has been struggling to finance a growing
budget deficit as local banks exhaust their liquidity and the
political chaos scares off foreign investors. Yields in treasury
bill auctions touched multi-year highs in recent days.
The cost of five-year Egyptian credit default swaps rose 7
basis points to 545 on Tuesday.
"My biggest fear is the liquidity crunch for the government
and the fear that devaluation is imminent unless the new cabinet
to be formed does something drastic and miraculous in a very
short space of time," said Radwan at Pharos in Cairo.
But some investors think Egyptian valuations will remain
cheap even if the Egyptian pound slides.
"Lots of investors are waiting for a devaluation, but that
type of thing happens all the time and valuations are
sufficiently attractive for me here," said Emad Mostaque, Middle
East strategist at Religare.
(Additional reporting by Natsuko Waki; Editing by Hans-Juergen
Peters, Ron Askew)