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

Egypt Stocks Rally on IMF Talks
  • Dollar debt due 2025 posts biggest yield drop in a year
  • Government is seeking a $12 billion loan from the IMF

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, prompting speculation that a currency devaluation is imminent.

The EGX 30 Index rose the most in more than four months, registering the biggest gain among more than 90 gauges tracked by Bloomberg globally, after the government said it’s negotiating a $12 billion loan agreement with the IMF as part of a plan to raise $21 billion over three years. The yield on the nation’s dollar-denominated debt due in 2025 fell the most since they began trading more than a year ago.

Here are some highlights:
* About 1.3 billion Egyptian pounds ($146 million) of shares traded, more than twice the market’s one-year full-daily average
* Half of the top 10 gainers on the EGX 30 were real estate developers
* Pound’s 12-month non-deliverable forwards weaken to a record
* Five-year credit default swaps fell the most since 2014 after the announcement

Egypt, which hasn’t fully recovered from the economic slump that followed the 2011 uprising, has been battling a dollar shortage that led to a nine-month contraction in business activity. The U.S. currency is trading on the black market at a record 46 percent premium to the official exchange rate, which has been kept unchanged since the central bank executed the biggest devaluation in 13 years in March. The move failed to attract foreign investors as the regulator has yet to follow through on its promise to adopt a more flexible 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 “will undoubtedly benefit in a post-devaluation environment,” he said.

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 close to or below the poverty line. Even though the country has concluded two IMF staff-level agreements since the revolt, they fell through when the government hesitated to implement the required reforms.

The EGX 30 climbed 5 percent, the most since the central bank’s March 14 devaluation of the pound, to 7,914.74. Commercial International Bank Egypt’s 5.8 percent gain was the largest contributor to the increase.

The nation’s 5.875 Eurobonds due in 2025 advanced, sending the yield down 52 basis points to 6.92 percent at 1:49 p.m. in London. Five-year credit-default swaps, which insure the country’s debt against non-payment, fell 9.3 percent on Tuesday, before trading little changed today at 450 basis points, according to data provider CMA.

Egyptian government “policy needs to re-establish credibility -- something a putative $12 billion” IMF deal might deliver, Simon Williams, HSBC Holdings Plc’s London-based chief economist for central and eastern Europe, the Middle East and North Africa, said in an e-mailed report. “Kick-starting the recovery and re-balancing cycle must see the Central Bank letting the currency find its own level and begin to trade freely. Politically painful fiscal consolidation measures also need to regain momentum and policymakers must find a way to breathe fresh life into the moribund development program.”

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