Credit Suisse Eqypt - What could happen next?

■ Event: President Mubarak has appointed General Omar Suleiman Vice President and General Ahmed Shafik Prime Minister in an attempt to contain the protests that have lasted since January 25th demanding a complete change of regime, including President Mubarak stepping down. We present two main scenarios regarding how it could play out in Egypt.

■ Scenario 1: President Mubarak to step down & military transitions government: We believe that the most likely scenario would be President Mubarak eventually stepping down and transferring power to General Suleiman under the military’s umbrella. In such a case, the military will remain in control and deeply involved in restoring order and national security under Suleiman until he potentially calls for dissolving of the parliament and then open for free democratic elections. On the other hand, this scenario involves General Suleiman or the military only assuming power during transition and doesn’t rule out the possibility that any other political party could become in charge in the case of free democratic elections. This would raise concerns about political instability in the MENA region as there would be the risk of a new and more radical government.

■ Scenario 2: President Mubarak succeeds in playing down the protests; We believe this remains a less likely scenario. For this to happen, President Mubarak has to have full control of the military and overlook international pressure for him to step down. This scenario basically involves a successful crackdown on the protestors and the creation of a rigid government that could make Egypt a far less stable country, thus negatively affecting both tourism and FDI. This would also involve President Mubarak making significant concessions such as;1) Constitutional changes that open up the field for the presidential elections in September to the main opposition; 2) Are-run of some contests in the parliamentary elections or potentially dissolving parliament; 3) An official commitment to not seek re-election in September. On the other hand, we believe that it is very likely that these concessions have come too late and could trigger even stronger protests and further tensions.

■ How to play the Egyptian equity market? Regardless of the political outcome, we would expect economic indicators to turn negative on top of the uncertainty on the political outlook which would translate into an elevated risk premium. Sector wise, we would expect lower beta sectors such as Telecoms to outperform Real estate and we see TMG and CIB as the most affected. However, OCI and EFG Hermes, stand out as they generate 22% of revenue and 50% of operating income from outside Egypt, respectively.