Attracted by the declining pound and record returns compared to its peers, emerging market investors are preparing to re-enter the Egyptian domestic debt market.
According to (Bloomberg) indicators, Egypt’s transition to a more flexible exchange rate has led to a return of interest on its debt in the local currency, which recorded the worst performance in emerging markets last year.
This comes after investors withdrew $22 billion from the market over a six-month period in 2022, according to Finance Minister Mohamed Maait.
Now, Egyptian treasury bills are trading at the lowest price ever compared to emerging market debt instruments, so the difference between the return of most Egyptian treasury bills and other developing countries this week is the largest ever, according to was report by (Al Sharq Bloomberg) website.
Attracting foreign investors back into the domestic debt market is crucial for the most populous country in the Arab world, which has been shunning foreign capital markets for almost a year.
The Egyptian pound fell to a record low of 32.1 against the dollar this month amid the country’s worst foreign liquidity crisis in years. However, some of them will still want to see the currency reach the stage of equilibrium before moving more toward Egyptian debt instruments.
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Columbia Threadneedle Investments believes that the Egyptian pound is already undervalued by 25%, when measured at the real effective exchange rate, which is a measure of the currency’s competitiveness vis-a-vis trading partners. But she also says the currency could depreciate further.
For its part, Deutsche Bank expects the pound to weaken by up to 10% to 33 against the dollar before stabilizing.
