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Sunday, 17 July 2022

The 2022 EM debt sell-off is getting serious, wire services warn

Default on the horizon? A record number of emerging markets are facing pressure as debt sell-off grows: Soaring inflation and rising US interest rates have sent investors fleeing emerging market (EM) countries this year, leaving “a record number of developing nations” facing possible default, according to Reuters. Taking into account falling currencies, dwindling reserves and 1,000 bps bond spreads, the newswire has named a dozen countries, including Argentina, Ecuador, Egypt, and Tunisia, as approaching the “danger zone” due to rising borrowing costs, inflation and debt.

Readers will recall that Bloomberg is also on the story, saying Egypt joins El Salvador, Ghana, Tunisia and Pakistan as being vulnerable to default. The business information service quotes one portfolio manager as suggesting that “about 10% of USD-denominated sovereign debt is at a high risk of default. … Russia and Sri Lanka have already defaulted this year, and there’s now a record 19 developing countries with sovereign debt trading at distressed levels.”

Don’t look at the yields: Yields on sovereign bonds of more than 12 developing countries are now trading at distressed levels, the FT writes, parsin Bloomberg data. “It’s pretty shocking to see this scale of a collapse in bond prices,” said Charlie Robertson, global chief economist at Renaissance Capital, adding that the sell-off is “one of the biggest I’ve seen in 25 years.” Investors have pulled USD 52 bn from EM bonds so far this year, according to JPMorgan.

A spate of defaults isn’t necessarily in the cards, according to some analysts who say that soaring yields are more an indicator of global economic headwinds than fiscal strains in all of these countries. “This is more a sentiment thing than a fear that countries will fall into default,” an investment manager at Amundi said. “But if this is prolonged, obviously it will increase funding costs for those countries and that will feed back into their ability to pay.”


  • Musk’s out…: Tech b’naire Elon Musk has terminated his USD 44 bn acquisition of Twitter, arguing that the social media platform has violated multiple provisions of the merger agreement. (SEC)
  • …and in a legal battle: In response, Twitter has filed a lawsuit to enforce the takeover bid, a move that could see a trial take place in September. "Musk apparently believes that he – unlike every other party subject to Delaware contract law – is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” Twitter said. (Reuters)
  • Nicht Uber: Ride-hailing giant Uber is at the center of a Europe-wide scandal after the Guardian published info from a leaked trove of 124k+ documents revealing the company’s secret lobbying efforts and dubious tactics used to enter new markets. (The Guardian)
  • RIP SPACkman: B’naire investor Bill Ackman will shut down his special purpose acquisition company (SPAC) and return USD 4 bn to investors after failing to find a target company to take public through a merger. (FT)




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The EGX30 rose 1.1% at last Thursday’s close on anemic turnover of EGP 395.45 mn (52.3% below the 90-day average). Foreign investors were net sellers. The index is down 26.7% YTD.

In the green: Credit Agricole Egypt (+5.2%), Palm Hills Development (+4.3%) and MM Group (+2.5%).

In the red: Medinet Nasr Housing (-5.1%), GB Auto (-1.1%) and Heliopolis Housing (-1%).

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