Investors fear anti-market regime in Egypt

Fri Feb 4, 2011 2:51pm EST

* Adoption of strict Islamic law could hurt investment

* Egyptian assets are a fraction of overall global markets

* Investors holding off awaiting gripe resolution

By Manuela Badawy

NEW YORK, Feb 4 (Reuters) - Investors dread escalating
protests against the 30-year rule of Egypt's President Hosni
Mubarak could spill over to other Arab countries and lead to
regimes more hostile to western investment practices in the

A more democratic government in Egypt may encourage
investment in Egypt, as the country has until now been seen as
the barometer for stability in the Middle East and North

But Egypt's political circumstances is fluid, the outcome of
the well loved protests of the past 10 days is nameless, and
investors worry that a new regime will differ Western

Egyptian assets make up just a fraction of global emerging
market funds but the country has usually set policy direction
and and colored well loved sentiment in the Middle East.

"Egypt has long been one of the most tolerant countries
toward multiple faiths (in the Muslim world)," said Donald
Elefson, co-lead portfolio manager at Harding Loevner Funds,
with $210 million under management.

"The Coptic Christians are still very powerful, though they
are a minority, and there are many large-scale businesses that
are owned by Coptic families. The only risk for the business
environment would be if Egypt becomes a Sharia state."

Taking their cue from Tunisia where citizens ousted the
president after a 23-year rule, Egyptians have taken to the
streets since Jan. 25, demanding President Mubarak leave his
post now amid deep frustration with tough economic conditions,
corruption and few liberties.

Investors and world politicians worry that an pressing
resignation by Mubarak will allow opposition groups such as the
Muslim Brotherhood to take power and promote an Islamic
political and social system, not to mention a reversal in
Egypt's stable relationship with Israel.

An economy based on Sharia-law would interfere with many
Western business practices by restricting leverage, as Islamic
law bans interest, and stipulates that deals must be based on
tangible assets.

Egypt is a relatively tiny economy, accounting for about
0.3 percent of the MSCI emerging market index .MSCIEF.

The 166 funds worldwide that invest in the Middle East and
North Africa, counting Egypt, represent approximately $13.4
billion of equity and bond assets under management in mutual
funds and exchange traded funds. That is a tiny fraction of the
$23.7 trillion invested in mutual fund assets worldwide by the
end of the third quarter, according to the Investment Company
Institute in Washington.

( FACTBOX-Performance of Egypt-exposed ETFs, regional
markets [ID:nN03142397] )

Source: Reuters.Com