Egypt Stocks Plunge as Foreigner Selloff Fuels Devaluation Bets

  • Egyptian pound's implied exchange rate weakens to record
  • EGX 30 is trading below 50-, 100- and 200-day moving averages

Egypt’s stocks fell the most in two months as foreign investors dumped the most shares since April, intensifying speculation that the country will devalue its currency.

Commercial International Bank Egypt SAE, the nation’s biggest publicly-traded lender, led the EGX 30 Index to the world’s biggest retreat behind Ukraine’s gauge. Non-Arab foreign investors were net sellers of about 133 million Egyptian pounds ($17 million) of shares. The Egyptian pound’s implied exchange rate weakened to the lowest since Bloomberg started tracking it in April.

Egyptian stocks have fallen as the pound's implied value based on equity trades shrinks.
Egyptian stocks have fallen as the pound's implied value based on equity trades shrinks.

Egypt’s two biggest state-owned banks raised interest rates on deposits last week, prompting speculation that officials are stepping up efforts to fight inflation to offset a depreciation of the pound. The currency is coming under increased pressure after Russia, Egypt’s biggest source of tourists, suspended flights to the North African country as investigators suspect last month’s Metrojet crash was caused by a bomb.

“Raising interest rates automatically weighs on the market and it’s being interpreted by some as preparation to float the currency,” said Wafik Dawood, a portfolio manager at Cairo-based Compass Capital, whose investment strategy in Egyptian equities has become more conservative. “People don’t like the market in light of higher interest rates and travel bans that have followed the Russian plane crash.”

Tourism Woes

Russia, which has repatriated about 25,000 tourists from Egypt on more than 100 flights since Friday, won’t resume trips soon because it wants to ensure the security of its citizens, Prime Minister Dmitry Medvedev said on Monday. Egypt’s tourism industry, one of the country’s main sources of hard currency, has struggled to recover amid almost five years of unrest since anti-government protests ended President Hosni Mubarak’s rule in 2011.

The EGX 30 Index lost 2.8 percent, the most in two months, to 7,138.81 at the close in Cairo on almost 50 percent more than the three-month average daily traded value. The measure fell below its 50-day moving average for the first time in a month. CIB slumped 4.7 percent, the most since August.

The pound’s implied value, based on the overseas listings of Egypt’s three most liquid stocks, fell 3.5 percent to 9.34 per dollar as of 2:10 p.m. in London. The central bank has kept the currency unchanged for three weeks at 8.0301 per dollar.

The government’s 5.875 percent Eurobonds due in 2025 fell, sending the yield up 23 basis points to 7.17 percent, the highest since the debt was sold in June.

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