To say that the Egyptian Exchange has been on a roller-coaster ride over the past few months would be an understatement. Although 2010 was not the strongest of years in terms of performance for a market that five years ago was tapped as the strongest performing emerging market, nothing could have prepared investors, traders or brokerages for what was to happen next.

In January, the Egyptian Exchange (EGX) was feeling the pressure of the region’s emerging political instability, particularly in the aftermath of the toppling Tunisia’s ailing government following the Tunisian revolution.

But even that did not prepare the market for what was to come next.

It’s not unusual for the four indices of the EGX to respond positively or negatively based on events unfolding both domestically or internationally. But the January 25 Revolution was uncharted territory for the EGX.

Beltone Financial founder Aladdin Saba explains that no one was prepared for the duration of the closure of the EGX. The Egyptian Exchange not only shut its door for the duration of the 18-day revolution, it also continued the closure until March 23, a total of 52 days. While during times of duress, such as a revolution, it’s not unusual for stock exchanges to shut their doors, the real issue was how long the market was closed for.

“Shutting the EGX for a while was the right decision; however, not for [as] long as it was shut,” says Saba. “Investors are willing to make money or lose money, but they are not willing to be locked in.”He explains that one of the worst possible scenarios for an investor is having their money invested in any venture and not being able to retrieve it when they want. In fact, one of the things that made the Egyptian Exchange really popular, particularly to foreign investors, was the fact that they could enter and exit the market very easily. So the decision to suspend trading on the EGX for a long time — although it was part of the effort to prevent the market’s crash — was not the best decision, as far as Saba was concerned.

“What did help was the fact that investors, especially foreign investors, were able to [extract] their money from the market quickly. This helped with the recovery and the reduction of negativity.”

Overall, he explains that the status of the EGX is better today than anyone had ever assumed it would be considering not only the fact that the January 25 Revolution happened but also the fact that the entire region is currently in turmoil.

Investors appeared to see the opportunities that Egyptian companies on the stock exchange had to offer as opposed to just the political situation. This was further helped by the fact that the EGX re-opened its doors just in time to prevent its de-listing from international indices list.

“When a country is listed [internationally] this allows for it to remain on the radar for international investors with information and data readily available. For those [passive] investors, this means that information on Egypt and Egyptian companies is readily available to them with little effort,” he says. “However, for active investors, if they are interested in Egypt — even if it had been de-listed — the would have gone through the process to [research] information about the country and its companies. The fact that we remained listed just made Egypt more accessible to everyone. We were not off the radar.”

And while no one really associates revolutions with stability, in the case of Egypt, it was the promise of a clear process that made all the difference. He notes that for much of last year, there were concerns as to what will happen next in Egypt with regards to political stability.

“There was no clear idea as to how power will be transferred in Egypt,” he says. “There was also no clear [indication] as to how the public will react to this transfer. So in fact, things were more politically unstable. At least now, investors know that there will be an election in the near future and that there is a clear and structured process through which power will be decided. This in itself creates stability and gives investors confidence.”

The fact that the EGX 30 is still going strong is a clear indication that investors know that they can and will make money in this market. Like most other markets, the stocks in certain sectors have always done well. By and large, these are still the same sectors that will continue to do well after the revolution.

“Telecoms have always been strong stocks and they will continue to be strong,” explains Saba. “The GDP growth will slow down, but there is enough news in this sector to give it a boost and keep it growing. This is in line with most other international markets.”

On the other hand, the banking and finance sector will probably see slight changes in its performance.

Saba explains that while the fact that the Egyptian economy is slowing down is likely to impact the non-performing loans for many banks as people or companies face challenges when it comes to money they owe to banks, the other side of the coin is that the government is in need of money. This means that it will have to go to the banks for financing and this should help this side of the equation.

“So it will be interesting to see how banks perform,” he says. “It is likely that one side of the business will bolster the other.”

But the picture of real estate, traditionally a very strong performer on the EGX, will be more bleak. Since real estate companies’ valuations are mostly based on their land banks, the issues that are currently dominating the market pertaining to the legality or illegality of the way land was allocated or obtained by companies will impact the perception of the market.

“There is also [the issue] of inflation pressures that will definitely impact the real estate market and probably its stocks.”

Demand for middle income housing is likely to continue to rise but the supply is simply not there — this has been an ongoing issue for the Egyptian market. People that would have traditionally obtained property in the high-end price bracket as a form of medium- or long-term investment — another tradition in the Egyptian market — will try to continue the same trend but by acquiring middle income properties.

“The pattern [of Egyptians obtaining real estate as a form of investment] will continue but people will be unwilling to put their money in high end properties. Instead, they will buy middle income properties, which will increase the demand for these kind of units. However, the supply is likely to stay the same. This will drive prices up,” Saba explains.

In terms of stocks, real estate stocks will continue to perform but perhaps, the traditional market leaders within that portfolio will not be the favorites.

While real estate and construction materials stocks are generally lotted together, Saba says this is not correct. Instead, they should be separated, particularly now.

Even during the revolution, the construction material companies did very well, largely due to the increase in illegal construction activities during the revolution. While this trend may have ended by now, it is likely that these stocks will do well not only because of individual construction activities, but also because the current government has stated that it intends on engaging in large construction projects. If they can secure the money, Saba says this sector will do very well.

The other really strong contender in the market will be consumer goods, both durable and non-durable. Saba says this is because of the fact that no matter what, people will continue to eat and this means that these are good stocks.

“But there is also another factor that people are not seeing right now and that is the potential for export, especially to countries with political challenges. Take Libya, [for example], the fact that there is political [strife] right now means that their industry and production is not moving. This is a great opportunity for export. And that political struggle will eventually end up opening huge opportunities for Egyptian companies.”

Saba predicts that, over the upcoming months, the performance of the EGX will be even stronger and more robust — ironically, he attributes that to the revolution.

“This revolution gave Egypt good marketing,” he says. “It created curiosity, especially among foreign investors, it was great publicity that will make people look into investing here. And the fact that Egypt has one of the better-regulated markets in the [emerging basket] will make it even more attractive.”

He says, although it might not seem this way right now, there will come a time a few years down the road, when people will say that the smart investors are the ones who put money in the EGX in 2011. But the key for that is for people to hang in there for those days when that decision doesn’t seem very logical. bt