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Market Commentary - February 4, 2011

In this bulletin, Joseph Tanious, market strategist of J.P. Morgan Funds, examines the recent events in Egypt from both a personal and analytical perspective and considers the impact they could have on the global economy and capital markets, including the causes of the current conflict, potential outcomes, the oil risk embedded in the turmoil and investment implications.

A few key article takeaways for investors:

  • Egypt has been in a “State of Emergency” since 1967, which has given the president unilateral control. A general malaise of deep poverty, low literacy, political corruption and consequently, a lack of hope, has plagued Egypt for quite some time but has increased significantly over the past year, exacerbated by recent food inflation.
  • Impact to oil minimal – Egypt is not a significant producer (globally ranked 29th in production) and the Suez Canal is too narrow for oil supertankers and not a crucial trade route
  • Political contagion risk is present, but not necessarily high – Spreading of revolutionary fervor to other states where there exists a greater risk of disruption to global oil supply is the real concern for investors and should be considered in balancing overall geo-political risk in global portfolios.

In sum, although political contagion is a possibility, JP Morgan does not expect these fears to materialize, and the crisis has not reached a level that changes their overall view of the US economy, global economy or relative valuation of assets.

Prepared by:

Suehyun Kim, Investment Research Director
Research Department, Cetera Financial Group

The views are those of Suehyun Kim, Investment Research Director, Research Department, Cetera Financial Group, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investors cannot invest directly in indices. Please consult your financial advisor for more information.

While diversification may help reduce volatility and risk, it does not guarantee future performance.

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