Egypt Stocks Rise Most in World as Bonds Rally on IMF Loan Talks

EghtesadOnline: Egyptian stocks and bonds rallied after the government said it’s negotiating with the International Monetary Fund for a loan to help revive its battered economy.

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27 July 2016

The EGX 30 Index advanced 4.7 percent to 7,894.03 at 11:08 a.m. in Cairo, the biggest gain among more than 90 gauges tracked by Bloomberg globally. Commercial International Bank Egypt was the largest contributor to the jump, climbing 6.8 percent, the most on a closing basis since March. The nation’s dollar debt due 2025 rose.

According to Bloomberg, Egypt is in talks for a $12 billion loan agreement with the IMF as part of a plan to raise $21 billion over three years to finance the government’s economic program. The nation, which hasn’t fully recovered from the economic slump that followed the 2011 uprising, has been battling a dollar shortage to led to a nine-month contraction in business activity, according to the Emirates NBD Purchasing Managers Index. The U.S. currency is trading on the black market at a record 46 percent premium to the official exchange rate.

"People are convinced that there’s no option but a free-float of the currency, and the fact that an IMF delegation is arriving on Friday for loan talks makes it likely that it will happen very soon," said Khaled Darwish, an executive director at Cairo-based CI Capital Asset Management. "Equities are an attractive asset class that will undoubtedly benefit in a post-devaluation environment."

Weakening Currency

Egyptian officials have resisted weakening the local currency since the uprising that ousted President Hosni Mubarak more than five years ago for fear that the move would fuel inflation and provoke social unrest, as almost half of the population lives in or near poverty. The country has reached two IMF staff-level agreements since the revolt, only to see them fall through as the government hesitated to implement required reforms.

The nation’s 5.875 Eurobonds due in 2025 advanced, sending the yield down 16 basis points to 7.28 percent, the steepest decline since July 11 on a closing basis. Five-year credit-default swaps, which insure the country’s debt against non-payment, fell 9.3 percent on Tuesday following the loan announcement, the most since December 2014. They were little changed today at 450 basis points, according to data provider CMA.

“Finally, all the pieces are falling into place for an immediate scrap" of the Egyptian pound’s peg to the dollar, Hany Genena, the head of research at Cairo-based Beltone Financial, said in an e-mailed report.