Egypt unrest may hit Middle East, Africa investment

Wed Jan 26, 2011 6:55pm GMT

By Carolyn Cohn

LONDON (Reuters) - Mass protests in Egypt, one of the darlings of African and Middle Eastern investors, sharply increase the risks that international investors will withdraw funds from some other economies in the region.

Fund managers were relatively sanguine about the upheaval in Tunisia which drove President Zine al-Abidine Ben Ali to flee earlier this month, as Tunisia is a frontier market which doesn't feature on many portfolio managers' radar screens.

But they did then point to the potential for contagion across parts of the Middle East and North Africa (MENA), with Gulf markets seen as relatively insulated, but Egypt an especially big risk.

That contagion appears to have started.

Egypt's currency hit a near-six year low, stocks fell 6 percent and debt insurance costs soared to their highest in 18 months on Wednesday, a day after massive "Day of Wrath" demonstrations called for an end to President Hosni Mubarak's 30-year rule.

Protesters who tried to gather on Wednesday were quickly dispersed and the government said it was banning demonstrations.

But significant damage has been done to investor confidence. At least $150 million left Egyptian local bond markets on Wednesday, according to data from investment bank Citi.

"The more tension that develops in the Middle East and Africa, the more readily investors will choose safety over capital gains, and thus eschew investments in the area," said Tom Dorsey, president at investment advisers Dorsey, Wright & Assoc.   Continued...

<p>Riot police keep watch as they hold shields during clashes with protesters in Cairo January 26, 2011. REUTERS/Goran Tomasevic</p>
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