Egypt stock exchange hits record highs

The Egyptian Trade (EGX) 30 Index has hit document highs as buyers within the North African nation look to hedge themselves towards quickly rising inflation and foreign money devaluations. At time of writing, the benchmark trade was buying and selling close to 18,850 – having strengthened by over 7% in August alone. In native foreign money phrases, the index has now risen by over 90% because the begin of the yr, with the rise in greenback phrases standing at round 2%.

This rise within the worth of Egypt’s largest publicly traded corporations comes at a time when Cairo is going through critical financial challenges. Significantly because the onset of the coronavirus pandemic in 2020, the Egyptian authorities has struggled to service its sovereign debt amidst a extreme scarcity of overseas trade. Partly because of this, the nation was pressured to depend on a bailout from the Worldwide Financial Fund (IMF), which was accredited in December final yr.

The $3 billion bundle was conditional on Egypt instigating wide-ranging reforms to monetary markets, financial coverage, and authorities spending. Essentially the most instantly important consequence was the liberalisation of Egypt’s overseas trade markets, which noticed the Egyptian Pound (EGP) drop to document lows towards the greenback. Whereas President Abdel Fattah al-Sisi appeared to rule out an extra devaluation of the Egyptian Pound in June, many buyers consider this to be seemingly within the coming months.

A a lot weaker Egyptian Pound, at a time when Cairo is operating a considerable commerce deficit of over $2 billion a month, has partly fuelled larger ranges of inflation by pushing up the price of imported important items. The North African nation has additionally been severely affected by President Putin’s choice to blockade Ukrainian grains, with Ukraine having accounted for over 20% of Egypt’s wheat imports over the past 5 years. This has additional pushed up the worth of bread and different necessities, with inflation in Egypt now operating at 36.5%.

These financial dynamics might assist clarify why native buyers are growing their publicity to Egyptian shares. A weakening foreign money and more and more excessive ranges of inflation are solidly eroding the worth of their money property. Particularly given the EGX 30 is performing strongly in comparison with rising market friends, it is sensible that many buyers are in search of to protect the worth of their property via shopping for up native shares. An identical pattern has emerged in Nigeria, the place a plummeting naira and hovering inflation has seen the Nigerian All Share Index make positive aspects of virtually 30% in native foreign money phrases because the begin of the yr.

Whereas in some methods Egypt’s buoyant inventory market displays native buyers’ considerations about foreign money depreciation and excessive inflation, elevated optimism concerning Egypt’s mid to long-term financial prospects might partly clarify the EGX’s run to document highs. The federal government’s dedication to normalise fiscal coverage and liberalise its monetary markets, in addition to the continuing monetary help being offered by the IMF, has raised hopes that Egypt’s financial efficiency could possibly be stronger within the months and years forward.