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Monday, 13 August 2018

Carry traders are back on. So is the Turkey crisis proving to be positive for Egypt?

EXCLUSIVE- Carry traders are back on. So is the Turkey crisis proving to be positive for Egypt? Egypt’s government is taking a very positive outlook on the Turkish economic fiasco which is currently wreaking havoc on emerging markets. Foreign investments in Egypt’s debt rose last week thanks largely to the Turkish crisis, Finance Minister Mohamed Maait told Enterprise in an exclusive. This comes after foreign holdings in Egypt’s debt dropped by around USD 3-4 bn during the emerging markets selloff, and yields at government bond sales rose to new highs to lure investors in. Maait did not tell us the extent of the growth in portfolio investments, but said that the turbulence in Turkey has driven these investors to us.

They were lured by our high yields, said Maait, who added that these remained attractive despite Argentinian bond yields rising significantly. This line of thinking will undoubtedly play into the CBE’s Monetary Policy Committee meeting this month, especially as the Finance Ministry increases its coordination with the central bank.

Even on the foreign trade front, the government is looking to capitalize on the Turkey mess, according to statements by Trade and Industry Minister Amr Nassar. The government is currently looking at maximizing exports to Turkey, which is going through a liquidity crisis, he tells Amwal Al Ghad without elaborating on any specific policy.

The wider EM impact: So far the most visible collateral damage from the crisis has been other EM currencies, with the TRY dragging the ruble, the Argentine peso, and the South African rand. Egypt and GCC stocks fell across the board again on Sunday. Despite Sunday’s sell off, “MENA (Middle East and North Africa) equities remain under-represented in global portfolios (and are thus less exposed to global EM (emerging market) outflows),” Sanat Sachar, equity research analyst at Al Mal Capital tells Reuters.

Analysts opinions on the extent of emerging contagion from the crisis differs widely. "We are going to see earnings drop in the back of this for those banks that are exposed to the Turkish story and we are also seeing the contagion and spillover effects of these huge moves in Turkey which are getting worse," according to Jordan Rochester, a currency strategist at Nomura International. Paul McNamara, a London-based money manager at GAM UK, disagrees, telling Bloomberg that "this can be contained to just Turkey because there aren’t really any other emerging markets which have the exact toxic blend that Turkey has."

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