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So the #1 stock market for 2012 is Egypt, and that’s causing a lot of people some consternation.Just yesterday, at the FT’s Beyond BRICs blog, Stefan Wagstyl put up a post on Egyptian stocks titled “Wishful Thinking” in which he spelled out the laundry list of reasons to think the Egyptian economy is screwed.
The economy is barely growing, with a GDP of around 1.5%, and the country has foreign exchange reserves that only amount to 2.5 months worth of imports. Government borrowing rates are around 15%. PE ratios are at a plump 17x.
Others have been slamming the Egyptian economy as well.
David Goldman recently called for an Egyptian economic meltdown of biblical proportions, as the country simply runs out of money. He specifically blames the new military kleptocracy for exacerbating the economic crisis.
Anyway, it’s all very ugly and depressing, and yet… there’s the Egyptian stock market up 40% this year.
So is the market now an overvalued bubble?
We haven’t the slightest idea, but there’s a lesson here which is that people who obsess over “facts” or “reality” can easily miss big market moves.
We wrote about this in mid-December in regards to Europe. Suddenly, it had become clear that the market had made a turn, and that the trend was for peripheral yields to come down and for the crisis to ease.
And yet of course, nothing had been “solved.” The whole list of horrible facts about the Euro setup were still in place. The Euro is flawed. There’s a competitiveness problem for the PIIGS. Trade is wildly imbalanced. You get the point.
The bottom line is that is that getting too obsessed with fundamentals can be deadly from a market perspective. Over time, sure, everything matters, but disconnects can be big and last a long time.
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