Back to the complete issue
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.”

ALSO IN PLANET FINANCE-

  • 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)

Up

EGX30

8,764

+1.1% (YTD: -26.7%)

None

USD (CBE)

Buy 18.83

Sell 18.91

None

USD at CIB

Buy 18.85

Sell 18.91

None

Interest rates CBE

11.25% deposit

12.25% lending

Down

Tadawul

11,163

-1.1% (YTD: -1.1%)

Up

ADX

9,250

+0.1% (YTD: +9.0%)

Up

DFM

3,160

+0.2% (YTD: -1.1%)

Up

S&P 500

3,863

+1.9% (YTD: -19.0%)

Up

FTSE 100

7,159

+1.7% (YTD: -3.1%)

Up

Euro Stoxx 50

3,477

+2.4% (YTD: -19.1%)

Up

Brent crude

USD 101.16

+2.1%

Up

Natural gas (Nymex)

USD 7.02

+6.3%

Down

Gold

USD 1,703.60

-0.1%

Up

BTC

USD 21,181

+1.2% (YTD: -54.3%)

THE CLOSING BELL-

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%).

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. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.