International optimism about Egypt’s economy continues: Economists at Bank of America Merrill Lynch see declining bond yields as one of the primary indicators that stabilizing foreign reserves and an appreciation of the EGP are drawing in foreign investors, according to its February insight report. The report takes the view the reform agenda has galvanized demand from bond investors, but these would hinge on Egypt receiving a positive review from the IMF when it arrives in March and the patience of the Egyptian street. “We expect a positive review based on end-of-December targets, which should unlock USD 1.25 bn in IMF financing. The key aspect of the review is whether fiscal targets would be reviewed in light of the weaker-than-anticipated USD/EGP exchange rate—EGP 12-14 per USD is implicitly assumed in the program. This could, in our view, ease reform slippage risk,” said the report, according to Amwal Al Ghad. The big downside risk highlighted by the report: “Slippage” in view of popular discontent with inflation ahead of the 2018 presidential elections.

The bank continues to take a decidedly optimistic view regardless, as Jean-Michel Saliba, economist and strategist for Bank of America Merrill Lynch MENA, tells the Financial Times’ Steve Johnson that rising international reserves and a narrowing of Egypt’s trade deficit will help relieve pressure on the currency further. A 30% year-on-year decline in imports in November could be the first sign of a rebalance, he added. Renaissance Capital’s chief global economist Charles Robertson has his hopes up on Egypt being the second “Trump trade” after Russia. Johnson’s epic piece for the FT’s EM Squared section is headlined “Foreign investors return to beaten-up Egypt” and notes that the market has “turned bullish even as Egyptians battle food inflation of 37%.”

Where does the EGP settle? Johnson quotes RenCap and Capital Economics, giving a range of EGP 12.90 to EGP 14.00 to the greenback.

The Ismail government’s reforms are boosting appetite for the EGP, the Financial Times’ Heba Saleh writes. EFG-Hermes economist Mohamed Abu Basha tells Saleh, “We are starting to turn a corner because now there is liquidity and the [USD] is coming down … Companies now say they are finding the [USD] they need in the banks and some are holding off buying because the price will come down.” A London-based economist told Saleh, “the mood among international investors toward Egyptian risk is currently very positive — the global environment is supportive and the market recognises the improvement in Egypt’s prospects since the IMF deal … But for now, the support is still short term. Egypt needs to prove it can follow through with reforms and rebalancing if the hot money in its local market is to turn into long-term financing.” Pharos Holding’s head of research Radwa El-Swaify says, “Hoarders have been offloading their [USD] after they heard that foreigners are now entering the market,” and adds that “one thing reassuring investors is that the IMF continues to monitor Egypt. Investors think there is huge potential but they are still testing the water.”

Meanwhile, CI Capital senior economist Hany Farahat sees rising FX liquidity and the clearing of the investor backlog as steps in the right direction, telling Bloomberg TV (runtime: 5:59) on Thursday he sees a stronger EGP in 2017.