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Sunday, 27 October 2019

Egypt’s bourse, EGP-denominated bonds have been underperforming for weeks

The EGX has been underperforming for weeks, and however well they’re doing, EGP-denominated bonds are lagging the EM peers. Stocks on the EGX have been among “the world’s worst performers” and EGP-denominated bonds have underperformed emerging market peers since small-scale protests broke out in a few cities last month, Bloomberg says. The downturn “has reminded investors just how narrow the exit window can be in adverse conditions,” says Fidelity International money manager Paul Greer. Fidelity has cut back on its exposure to Egyptian t-bills in the past few weeks, Bloomberg notes.

Egypt’s strong macro performance is still an attraction… Although Egypt remains appealing for investors, particularly as rapidly cooling inflation has bumped up inflation-adjusted yields to around 10% and the economy is growing at a faster rate than the rest of its Arab peers, the news information service says. Coupled with the EGP rally, high yields have helped local bonds rise 39% in USD terms this year, which is higher than the average yield in EMs by a factor of seven, Bloomberg Barclays indexes show.

…but is it not enough to keep investors hooked? Investors are now wary of having to factor in political factors and “discontent that rapid growth is failing to reduce poverty,” Bloomberg claims. Fidelity’s Greer tells the business information service that he remains bullish on Egypt for the rest of 2019, but warns that bonds and the currency “would be hit” if we see another bout of political protests. The Financial Times’ Heba Saleh had suggested much of the same last week, saying that Egypt’s hot money inflows are largely contingent on investors remaining confident about the political climate.

It’s not just Egypt, though — markets are beginning to take notice of protests around the world, Reuters says. Money managers and risk analysts looking at several areas that have either recently witnessed or are in the midst of protests, including Beirut, Hong Kong, and Santiago, are concerned that the causes of unrest could be exacerbated if the world slips into recession. “Forced fiscal loosening in a world already swamped with debt and heading into another downturn may unnerve creditors and bondholders, especially those holding government debt as an insurance against recession and a haven from volatility,” the newswire says.

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