The global stock markets were sent crashing last Friday when the political turmoil in Egypt escalated. The major indices in Asia, namely the Nikkei, Topix, and Hang Seng were all in red. The Nikkei slipped by 1.13% to 10,360.30 while the Topix slipped by 1.07% to 919.69. Similarly, Hong Kong’s Hang Seng also fell by 0.68% to 23,617.00. The markets in Europe experienced the same battering with the Stoxx 50 faltering by 1.39% to 2,954.13. Moreover, both FTSE 100 and DAX likewise fell by 1.40% to 5,881.37 and 0.74% to 7,102.80, respectively. In the US, the Dow Jones Industrial Average fell by 1.39% to 11,823.70 while the broader S&P 500 sunk by 1.79% to 1,276.34. The massive sell off even pushed the Nasdaq by 2.48% lower to 2,686.89 which was its worst dropped in 5 months.
So what exactly happened in Egypt? Before that, let me first give you a little background on Egypt president, Hosni Mubarak.
Muhammad Hosni Sayyid Mubarak or Hosni Mubarak for short is the current and fourth president of the Arab Republic of Egypt. Actually, he has been Egypt’s president for more than 3 decades already since he assumed the position when his predecessor, President Anwar El-Sadat was assassinated back in October 14, 1981. His presidency has been marred with political corruption given his long stay. Recently, he and his administration have once again been the subject of public uprising.
Egyptian protesters banged with the police and military as the former pushes for “liberty” and “change,” effectively asking the administration to resign. More than 100 people have already been killed in the protest with about 450 more being arrested as they continue to defy the government’s curfew. Widespread riot and looting have also been prevalent amid the chaos. Just today (January 30), Egyptian President Hosni appointed Omar Suleiman, the chief of Egyptian Intelligence, as vice president of the country. This could be a sign that the president is becoming ready to leave his post. Still, the public continued to rally and protest in the streets and are expected to do so until he finally vacate the presidency.
So what’s all fuzz about Egypt. Well, for one Egypt is the most populous among the Arab nations that borders the Suez Canal. The Suez Canal, in case you do not know, is one of the busiest shipping routes in the world. About 8% of global sea trade with 1 million to 1.6 million barrels of crude oil pass through the canal. Another 3 million or so barrels of crude oil pass through an adjacent pipeline, putting the total to about 4.7% of the global output. Hence, any disruption like a civil war in Egypt could possibly affect the flow of trade within the region. Moreover, the immediate negative sentiment of the market would lead investors to pull out their money, causing a widespread sell off in the markets.
Now, as long as the unrest in Egypt remains, expect a lot of investors to shy away from the markets. On a separate note, the weaker-than-expected US fourth quarter GDP (3.2% versus 3.5%) could further add some selling pressure as soon as the Asian trading opens on Monday. In fact, the week could even start with a downside gap. So if you do not have any open long positions, it’s better to just stay away or even short sell selected issues if you can. Right now I would be very careful since a lot of issues are presently trading just above their major technical supports. As you know, a break of those could send the respective issues plummeting. Stay on your toes!