Egypt's bourse snapped a three-session losing streak on Tuesday after authorities arrested Muslim Brotherhood leader Mohamed Badie, raising hopes among some investors that the government would succeed in dampening down unrest.
In the view of many foreign investors, Badie's arrest may do nothing to resolve Egypt's long-term political tensions; it may simply make a negotiated settlement and an eventual transition back to civilian rule more difficult. For those reasons, the stock market may not be starting any extended rally.
But many local investors approved of last month's ouster of the Brotherhood's President Mohamed Morsy, believing it would clear the way for better management of the economy. They have been encouraged by the government's action against top Brotherhood leaders.
Egyptian investors were net buyers of stocks on Tuesday while foreigners remained net sellers, bourse data showed.
Cairo's main stock index climbed 1.1 percent, ending three days of declines in which it tumbled 5.6 percent as hundreds of people died during the crackdown on the Brotherhood.
"The main catalyst was the crackdown on the MB and the arrest of their leader," said Islam Batrawy, deputy director of institutional sales trading at Naeem Brokerage in Egypt. But he added: "Investors are waiting for the country's security situation to normalise after the recent tensions."
The exchange resumed a normal four-hour trading session on Tuesday after closing last Thursday and shortening trading hours for two days this week to give employees more time to obey a curfew.
Blue chips Commercial International Bank and Orascom Telecom advanced 1.1 and 1.2 percent respectively. Second-quarter earnings quality at some companies "has been good and is helping people take positions again", Batrawy said.
The mood was also buoyed by Saudi Arabia's pledge late on Monday to provide more financial assistance to Egypt if needed to offset any aid cutbacks from Western nations – confirmation that wealthy Gulf states view Egypt's stability as a geopolitical priority.
The Gulf aid will not by itself restore healthy economic growth, but it should succeed in preventing the balance of payments and state budget collapses that seemed possible under Morsy.