Devaluation Bets Stoke Egypt Stocks as Mideast Markets Reopen

  • Saudi Tadawul leads Gulf equities as focus shifts to earnings
  • Dubai trading volume increases following Muslim holy month

Devaluation Bets Stoke Egypt Stocks

Egyptian stocks had the biggest advance in almost four months, leading gains across most Middle Eastern markets, as traders speculated the country may devalue its currency as early as Tuesday.

The EGX 30 Index jumped 4.7 percent at the close in Cairo, with trading volumes on the main gauge 157 percent above the average of the past 20 days. Commercial International Bank Egypt, the nation’s biggest publicly traded company, advanced 5.3 percent. Saudi Arabian stocks rose the most in more than a month as investors prepared for the release of financial results.

Equities in North Africa’s biggest economy are rallying after the central bank made public its regret for five years of defending the local currency and President Abdel-Fattah El-Sisi discussed foreign-exchange policy with the finance minister. Egypt is suffering a hard-currency shortage that’s prompted the government to plan a Eurobond sale and start informal talks with the International Monetary Fund. Traders are betting the country may weaken the pound as soon as Tuesday, when the central bank holds its weekly sale of dollars to local lenders, according to Arqaam Securities Brokerage.

“Foreign exchange is Egypt’s biggest problem, the elephant in the room that needs to be dealt with now,” said Radi Elhelw, the Cairo-based executive director for Arqaam. “Fortunately, we’re seeing signs from the government that it’s moving to do that. Local institutions are buying the market aggressively, which is justified. But we think it’s a bit premature because the government needs ample liquidity to defend the pound, which it doesn’t have right now.”

Central Bank Governor Tarek Amer has been able to add about $1 billion to Egypt’s international reserves since taking office in November to reach $17.5 billion, about $6.5 billion short of what he said he needed to allow the market to determine the pound’s value.

Increasing demand for dollars and a struggling tourism industry have pushed the premium for the U.S. currency to about 25 percent on the black market. The spread between the pound’s official rate and 12-month forwards has widened to the most since the eve of the country’s 13 percent depreciation in March, according to data compiled by Bloomberg. The government reported Sunday that inflation reached a six-year high of 14 percent in June, underscoring authorities’ hesitancy to loosen their grip on the pound.

Real estate stocks were among the biggest winners on bets of a cheaper currency. Talaat Moustafa Group, the country’s most valuable developer, soared 7.6 percent, taking its two-day gains to 14 percent. The EGX 30’s real estate index is up 12 percent since the central bank commented on its currency policy last week.

Saudi Rally

Saudi Arabia’s Tadawul All Share Index led the advance among gauges in the six-nation Gulf Cooperation Council, adding 0.9 percent. Dar Al Arkan Real Estate Development Co. and Al Rajhi Bank were among the biggest contributors to the gain, adding 9 percent and 1 percent, respectively.

“We can expect focus to shift to second-quarter results from here, which start with Saudi Arabia this week,” said Saleem Khokhar, the Abu Dhabi-based head of fund management and equities at the asset management group of National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-biggest bank by assets. “We expect real estate to do well, petrochemicals to be OK but bank earnings to be soft.”

The kingdom’s three-month interbank offered rate, a benchmark used to price loans, fell to 2.22 percent, the lowest since June 15, as bank liquidity improved. While the measure has risen 67 basis points this year amid the slump in oil prices, today’s decline was the fifth in eight trading days, underlining expectations that the U.S. won’t rush to raise borrowing costs.

Dubai Volumes

Trading picked up in some parts of the region as investors returned following the holy month of Ramadan, when many Muslims fast from dawn until dusk and activity typically slows. Markets were closed for all or part of last week to mark the end of the religious period.

Dubai’s DFM General Index rose 0.4 percent as 233 million shares changed hands, 30 percent more than the market’s 20-day average. Arabtec Holding, the biggest-listed construction company in the U.A.E., jumped 5.6 percent, the most in more than three months.

Abu Dhabi’s ADX General Index fell 0.2 percent, erasing an earlier advance as First Gulf Bank PJSC trimmed some of last week’s gains, which followed the announcement the lender would merge with NBAD.

Oman’s benchmark rose 0.1 percent, while Kuwait’s dropped 0.2 percent. Stock markets in Qatar and Bahrain will reopen on Monday.

Israel Climbs

Israel’s TA-25 Index rose 1.4 percent at the close in Tel Aviv, the biggest climb since February, taking its two-day gain to the largest since November. All but one of the gauge’s companies increased as Ormat Technologies Inc. which also trades in New York, led the advance, adding 2.7 percent.

“Dual-listed companies are pushing the Tel Aviv index up following optimism in U.S. markets on Friday,” said Meir Slater, the Tel Aviv-based head of research at Bank of Jerusalem Ltd. “We are likely to see optimism continue when European markets reopen tomorrow.”

Shares in Space Communications Ltd., the country’s satellite operator, rose 4.4 percent. The company signed a deal for as much as $164 million to provide the Israeli government with services using extra capacity on some of its satellites.

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