Egypt Shares Rise on Speculation Drop Overdone; Gulf Stocks Drop

June 05, 2011, 11:38 AM EDT By Zahra Hankir and Ahmed A Namatalla

June 5 (Bloomberg) -- Egypt shares rose the most in a week on speculation the recent drop was overdone as the exchange said a government plan to impose capital gains tax applies only to dividend distributions and not to profit from stocks trading.

Orascom Construction Industries, Egypt’s biggest publicly traded property builder, jumped 2.5 percent. Commercial International Bank Egypt SAE advanced the most in a week. The EGX 30 Index gained 1.6 percent, the most since May 29, to 5,445.01 at the 2:30 p.m. close in Cairo. The measure slumped 2.7 percent on June 2 after the government unveiled the capital gains tax on dividends and higher corporate tax bracket to curb the budget deficit. In the Persian Gulf, the Bloomberg GCC 200 Index declined 0.3 percent.

“The negative effect we saw last week from the capital gains tax announcement was very short-lived because the market is still trading at a discount and small investors now see that their trading profits will not be affected,” said Ashraf Akhnoukh, senior equity sales trader at Cairo-based Commercial International Brokerage. “There still remains a growth story here.”

The bourse is studying the capital gains tax plan and will discuss it with the business community and the markets regulator before advising the government, the exchange said June 2. The 24 percent decline in Egypt’s shares this year has left the 30 companies on the benchmark index valued at an average 7.7 times estimated earnings, data compiled by Bloomberg show. That compares with 11.1 times for the MSCI Emerging Markets Index.

Budget Deficit

Egypt is trying to rein in a widening budget deficit as the North African country raises subsidy spending and salaries of state employees to meet public demand for improving living standards after a popular revolt ended 30 years of rule by former President Hosni Mubarak in February.

Orascom Construction advanced the most since May 29 to 268.04 Egyptian pounds. Commercial International, the biggest publicly traded bank by assets, rose 1.4 percent, the most since May 29, to 30.39 pounds.

Qatar’s QE Index retreated 1 percent, while Kuwait’s index dropped 0.8 percent. Oman’s gauge declined 0.6 percent and Dubai’s DFM General Index was little changed. Abu Dhabi’s ADX General Index lost 0.2 percent and Bahrain’s measure slipped 0.1 percent. Saudi Arabia’s Tadawul All Share Index gained less than 0.1 percent.

Israel’s TA-25 measure advanced 0.2 percent in Tel Aviv. The benchmark Mimshal Shiklit government bond due January 2020 declined, pushing the yield two basis points higher, or 0.02 percentage point, to 5.09 percent.

--With assistance from Alaa Shahine in Dubai. Editors: Shaji Mathew, Shanthy Nambiar

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net; Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editors responsible for this story: Shanthy Nambiar at snambiar1@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net

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