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Monday, 4 October 2021

EM equities’ vulnerability to US yields is at a four-year high

EM equities are looking very vulnerable to a spike in US treasury yields, with Bloomberg data showing the sensitivity of EM assets to fluctuations in US treasuries at its highest level since 2017 last week. For the first time in nearly half a decade, EM stocks and, similarly, bonds responded very aggressively to a brief spike in US two-year treasury yields — with stocks registering their biggest streak of weekly declines in over two years and bonds seeing some USD 28 bn in outflows last week. Driving all of this appears to be the spectre of rising inflation in the global economy as central banks become increasingly hawkish.

On the debt side of the house, Bloomberg thinks Egypt is well-positioned to avoid the worst of a potential EM selloff: Strong foreign reserves, a fast-growing economy, and a switch to longer-term maturities in recent years mean Egypt is best-placed among EM to weather a potential storm, Bloomberg wrote over the weekend. A reliance on foreign investors however means we’re vulnerable to volatility in fixed-income markets, while high debt service costs could get even higher if Egypt falls under pressure to pay out higher yields to stem potential outflows.

Adnoc Drilling shares rose 28% during its first day trading on the ADX yesterday, closing at AED 2.95 per share after opening at AED 2.30. The share price popped as much as 33% during trading, pushing the company’s market cap to AED 48 bn, before falling back slightly by the session’s close, according to Bloomberg. The IPO had been met with huge investor demand, allowing the company to increase the size of the institutional offering to USD 1 bn. EFG Hermes was joint bookrunner on the IPO, the leading EM investment bank said yesterday (pdf).

Speaking of going public: Carmaker Volvo, majority owned by China’s Geely, is getting ready to IPO in Sweden in a transaction that could value the company at up to USD 25 bn. The Wall Street Journal, which broke the news in an exclusive, says that if the transaction goes ahead, it would be “one of the car industry’s most dramatic turnarounds. Ford Motor Co, weakened by the global financial crisis, sold the Swedish company to Geely for USD 1.8 bn in 2010.”

The Emirati government is expected to start marketing its first federal USD bond this week, sources told Reuters. Although individual Emirates have issued sovereign bonds before (see: Dubai, Abu Dhabi), this will be the first time the federal government takes to the debt markets.

Down

EGX30

10,366

-1.4% (YTD: -4.4%)

None

USD (CBE)

Buy 15.66

Sell 15.76

None

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

Down

Tadawul

11,453

-0.4% (YTD: +31.8%)

Up

ADX

7,719

+0.3% (YTD: +53.0%)

Down

DFM

2,834

-0.4% (YTD: +13.7%)

Up

S&P 500

4,357

+1.2% (YTD: +16.0%)

Down

FTSE 100

7,027

-0.8% (YTD: +8.8%)

Up

Brent crude

USD 79.28

+1.2%

Down

Natural gas (Nymex)

USD 5.62

-4.2%

Up

Gold

USD 1,758.40

+0.1%

Down

BTC

USD 48,137.49

-0.11% (as of midnight)

THE CLOSING BELL-

The EGX30 fell 1.4% at yesterday’s close on turnover of EGP 1.18 bn (24.7% below the 90-day average). Local investors were net buyers. The index is down 4.4% YTD

.

In the green: Abou Kir Fertilizers (+1.1%), Mopco (+0.9%) and Pioneers Holding (+0.4%).

In the red: MM Group (-3.3%), Telecom Egypt (-3%) and Ibnsina Pharma (-3%).

Major indexes in Asia are mostly in the red, with the Nikkei, Kospi and Hang Seng are all shedding early gains. All are down 1-2% at dispatch time, with only Shanghai bucking the trend (it’s up about 0.9%). Futures suggest most major European indexes will open in the green, as will the Dow, S&P and Nasdaq later today.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

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