Egypt likely to lure $3-4 billion inflows into bond market in H2 2021
Egypt is expected to witness foreign inflows worth around $3 billion to $4 billion into the bond market in the second half (H2) of 2021, Chief Economist at Beltone Financial Alia Mamdouh told Bloomberg in an interview.
Portfolio flows are projected to see significant recovery over the coming six months if Egypt settled its debts with Euroclear Bank and if the country’s local-currency bonds got re-listed onto JPMorgan’s emerging-market sovereign bond index later this year, Mamdouh said.
JPMorgan shall be announced by October whether Egypt would be included in the index, which is expected to generate $1.4 billion to $2.2 billion in inflows into EGP-denominated debt, she highlighted.
In April, the US investment bank said it would take a decision regarding this matter within six months.
Euroclear Bank is expected to make a decision at a similar time, as Egypt’s bonds could start to become “Euroclearable” during the period between September and November, enabling foreign funds to easily get into and out of Egyptian debt.
Egypt has been listed among FTSE Russell’s new frontier-market sovereign bond index launched in June, which the Ministry of Finance forecasts it should attract another $4 billion in foreign inflows.
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Bond yields are also projected to remain high at current levels of 15-15.2% until the end of 2021, with an expected “slight” uptick in 2022 with the rise of corridor rates, Mamdouh noted.
Inflation rates are likely to rise to an average of 6.9% in H2 2021, compared to 4.5% in 1H 2021 due to increasing global commodity prices and a recovery in spending patterns, she said.
Hence, Beltone is projecting that the Central Bank of Egypt (CBE) would raise interest rates by 100 basis points (bps) in H2 2022.
It is worth noting that foreign holdings have hit new record highs this year after the emerging-market sell-off that accompanied the Covid-19 first wave in March, with foreign investment in bills and bonds growing to around $28-29 bn at the end of May, after declining to $10.4 billion in May 2020.
Foreign inflows into debt are already seeing recovery, although foreign inflows fell in March and April 2020 as a result of the pandemic-induced sell-off, however, hot money began coming back to Egypt in May 2020 to reach $23 billion at the end of November.
