Bloomberg: The best investment in debt instruments in the world in Egypt after the stabilization of interest rates

Economy and stock exchange

Foreign investors come to Egypt for what Renaissance Capital has described as the "best economic reform" in emerging markets and Egypt continues to offer the world's largest return on investment in debt instruments this year, Bloomberg reported.

Egypt's cut in one-time interest rates in more than a year, together with the global central banks' move to cut interest rates, supported the rise of the Egyptian pound, which ranks second after the Russian ruble among all the currencies tracked by Bloomberg in 2019, Currency and the continued attractiveness of returns, foreigners' acquisition of domestic debt instruments increased by nearly 40% this year to April.

In the coming months, Egypt's position as an attractive country for investment in debt instruments is likely to be affected only to a very small extent as investors borrow in currencies with low interest rates and invest in the domestic assets of the rising countries.

Investment in debt instruments

All 11 economists surveyed by the Bloomberg poll, with the exception of one of them, expected the MPC to keep its key interest rate at 15.75 percent for the second time at a meeting on Thursday. Interest rates may continue to stabilize during the summer, Hermes. "

"Egypt will remain attractive to investors compared to other emerging markets because the interest rate should remain relatively high, its domestic currency is well positioned, and its risk level is low compared to other emerging emerging countries," said Mohamed Abou Pasha, head of macroeconomics at EFG-Hermes. "He said.

The economic reform program provided a strong boost, which led to increased interest of investors to enter the market of the largest Arab country in terms of population after the abolition of currency restrictions in 2016 and the liberalization of the pound exchange rate in order to reduce the deficit in the dollar, The Central Bank of Egypt [CBE] has been able to cancel the mechanism of guaranteeing the conversion of the Egyptian Central Bank from last year's investment inflows of about 10 billion dollars during the selling wave witnessed by the emerging markets. Investors' funds.

Despite expectations that a shift to the open market could have led to greater volatility in the pound, the monthly rate of change has been halved. Since January, the pound has been trading at its strongest level in more than two years after rising More than 6% against the dollar in 2019.

"The rise of the Egyptian pound finally reflects the market forces, which are working to reassure investors, rather than the previous stalemate resulting from the mechanism of guaranteeing the transfer of investors' money abroad," said independent economist Riham al-Desouki.

Pound rises in 2019

At the same time, Egyptian credit offers one of the largest returns among developing countries, with a one-year return on credit at about 17 percent, or more than three times the average return on local currency debt in emerging markets.

It is encouraging that a decision was made by the Egyptian side to initiate contact with JPMorgan Chase & Co. , In order to discuss the inclusion of Egypt in the index of emerging market bonds. In addition, the Egyptian Ministry of Finance signed an agreement with Euroclear which may help attract foreign demand to invest in debt instruments in local currency.

Interest rates remain high as the central bank looks to cut inflation to single rates next year and defied expectations in March when it cut interest rates by 100 basis points after unexpectedly cutting it in the month ahead.

Although inflation slowed in March and April, monetary policy makers are cautious ahead of a new round of cuts in energy subsidies in June, as well as an increase in wages next month.

However, the monetary policy easing cycle is likely to limit the pound's rise as the strength of the local currency may be a source of concern to the government because it is damaging to exports and tourism.

According to current interest rates, the Goldman Sachs group says its inflation forecast suggests "real interest rates are historically high," indicating that monetary policy can be facilitated by up to 300 basis points over the rest of the year.

Given the possible fall in the pound later this year, if interest rates fall, "some investors may adopt a wait-and-see approach," according to analyst Riham Desouki.

But the return on Egyptian assets and bonds could make foreign buyers return for more.

"We will see continued flows but at a slower pace during the year, as investors await the prospects of the monetary policy easing cycle," EFG-Hermes Mohamed Abu Pasha said.

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