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Monday, 28 June 2021

Bahrain over Egypt, says Arqaam Capital

Rising oil prices have Arqaam favoring Bahrain’s bonds over Egypt’s: The Egyptian bond market may be underpricing the country’s vulnerability to rising oil prices, Abdul Kadir Hussain, managing director of fixed income asset management at Arqaam Capital, suggested in an interview with Bloomberg Daybreak yesterday (watch, runtime 6:11). Although many of the region’s sovereign yield spreads have priced-in higher oil prices, Hussain suggested that Egyptian spreads may not be reflecting the level of risk that the country — a net importer of oil — faces as prices climb. “Even though Egypt trades wider than Bahrain, we think that the spread differential is not wide enough, given the headwinds Egypt might face from higher oil prices, even in the face of improving tourism,” he said.

Global oil prices have surged in recent weeks amid surging post-lockdown demand and a supply shortfall. The price of Brent crude rose to USD 76.18 / bbl at the end of last week, its highest level since October 2018, and more than USD 11 above the benchmark price used for Egypt’s 2020/2021 state budget. A number of market players have called a return to USD 100 oil in recent weeks as prices have continued to climb. And this week’s OPEC+ meeting isn’t expected to deliver the extra supply needed to put a ceiling over prices, meaning further rises in the days and weeks ahead.

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