LONDON Cairo financial markets, reopening from a prolonged closure and a steep selloff, cannot look forward to much support from overseas portfolio managers who want more clarity on Egypt's economic and corporate outlook before venturing back to the country's newly-cheap securities.
Seven out of ten fund managers interviewed by Reuters for this article said they will not buy Egyptian securities just yet despite steep falls that have brought stock valuations to among the most attractive levels in the emerging market asset class.
The assets are cheap for a reason, most investors argue.
With Cairo and much of Egypt roiled in political tension and protesters demanding an immediate end to President Hosni Mubarak's 30-year rule, the country has ground to a standstill.
Economic growth and investment projects in North Africa's biggest economy will almost certainly take a hit. And as turmoil also engulfs neighbouring states, there are big question marks on how investor-friendly future government policy will be.
"Valuations look attractive if you are a short-term trader. But we are long-term investors and need to look ahead and see how all this will impact companies' results, their cash flow generation and financing needs," said Dilek Capanoglu, CIO Global Emerging Markets at RCM, a company of Allianz Global Investors in Frankfurt.
"You need to assess the danger to the overall economy, which has come to a standstill over the past two weeks."
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Egyptian shares.EGX30 fell 21 percent in January, after rising 15 percent last year and 35 percent in 2009.
Yields on its $1 billion global bond maturing 2020 rose over 100 basis points. And debt insurance costs have jumped. It now costs $400,000 to insure exposure to $10 million of Egyptian debt, $150,000 more than at the start of 2011.
The mood now, almost two weeks into the mass demonstrations, is far worse than at the start of the week when hopes had grown for a peaceful and speedy transition of power.
That tempted some foreign investors to buy offshore-listed assets, pushing up London-listed global depositary receipts (GDRs) issued by Egyptian firms and an Egypt exchange traded fund (EGPT.P) listed on the New York stock exchange.
But since then, violence has broken out. Gains in the GDRs and ETF have stalled though they are well off recent troughs.
"A few days ago I was positive, now I am reassessing that," said Sven Richter, head of frontier markets at Renaissance Asset Managers, which has a big underweight on Egypt.
Egypt's finance minister offered little comfort, admitting economic loses from the unrest were "huge".
FORMER ... AND MAYBE FUTURE DARLING
Despite accounting for under 1 percent of the MSCI emerging index .MSCIEF, Egypt's bourse lured a disproportionate volume of inflows as investors saw its young, 80 million population as a sure fire bet on consumer demand.
Egyptian firms such as Orascom and EFG have a regionwide presence and earnings growth -- expected at 34 percent in 2012 -- was the highest in emerging Europe and the Middle East. The economy has been growing at 5 percent annually in recent years.
Foreigners held some $25 billion in Egyptian securities before the crisis, according to estimates by Barclays Capital.
But the extreme positioning meant Egypt was ripe for a reversal even before it started feeling the political heat.
And now with investors having been trapped into a closed market, another round of panic selling is likely when trading resumes on Monday.
"The markets did not give us a fair chance to exit and we did not want to add to the panic selling last week," said Nadi Burgatti, head of asset management at Shuaa Capital in Dubai.
Some argue the shares are a steal at these prices. They trade at 8 times 2011 earnings, among the cheapest in emerging markets and a record discount to their own 5-year average.
HSBC equity analysts for instance this week moved Egypt to double overweight in their model portfolio, noting the army's conciliatory response to the protests and the West's interest in maintaining calm in Egypt, a key geo-political partner.
"It is likely that the market is over-pricing the tail risks," they told clients in a note.
One fund manager who asked not to be named said he had been underweight Egypt but last week used the market decline to add exposure and is now at benchmark weight.
"In the longer term you have to be positive about the economy and the companies that operate in it," he added.
BONDS A BUY BUT EXPECT MORE RE-PRICING
Egyptian external bonds may fare better than the shares. Many argue the debt is trading cheap relative to the country's credit ratings, given gross external sovereign debt is extremely low at just 17 percent of gross domestic product.
"We are currently trying to increase exposure to external debt ... from an external debt perspective, it's difficult to see Egypt default whether Mubarak stays or goes," said Sergei Strigo, head of emerging debt at Amundi Asset Management.
He was less optimistic about local debt especially as the Egyptian pound's recent fall to six-year lows is likely to exacerbate double-digit inflation.
One thing all investors agree on is that political reform in Egypt is overdue. But the worry is what policies the government will adopt once the protesters disperse. Monetary and fiscal tightening are crucial to stem inflation but will certainly depress consumption and corporate margins at least short-term.
"Whichever government comes in will have to address poverty, inflation, job creation," Capanoglu of RCM said. "The worry is they could be tempted to favour populist policies."
(Additional reporting by Dinesh Nair in Dubai, graphics by Scott Barber; Editing by Ruth Pitchford)