By Win Thin
The situation remains unsettled in Egypt. As of this writing, President Mubarak pledged to stay on until his term ends in September, but delegated some authority to VP Suleiman. Because of his strong connections to Mubarak, Suleiman will not be taken well by the protestors and we think the situation will intensify ahead of and over the weekend. Mubarak pledged to change the constitution to introduce more democratic elements and to hold free elections in September, but he struck a defiant tone in saying “We will not accept or listen to any foreign interventions or dictations.”
While the stronger EM credits will eventually decouple again from Egypt, the short-term knee-jerk reaction for EM overall (as well as other risk assets) is still likely to be negative. We suspect plans to reopen the Egyptian stock market this Sunday will have to be delayed, as things are going to get worse before they get better. What needs to be determined is how the Army will react to events. It must have given Mubarak the OK to stay on, and so the military may have little patience with the ongoing protests and strikes. We should know more tomorrow.