Egypt’s Status as an Emerging-Market Darling Under Threat

(Bloomberg) -- Political risk is back on the table in Egypt, and it’s threatening the country’s status as an emerging-market darling.

Egyptian assets have come under pressure since Friday’s anti-government protests alleging corruption in the military, with 12-month NDF contracts for the pound rising the most since March 2017 to 18.38/USD (versus the spot rate of 16.29). Stocks have fallen almost 7% in two days, the most in more than three years and the biggest drop by far among equity markets worldwide.

Until now, investors have put political concerns, including the government’s jailing of thousands of opponents, to the side and instead focused on Egypt’s macroeconomics. Thanks to IMF-led reforms since 2016, the economy is the fastest-growing in the Middle East and North Africa and the inflation rate is the lowest in 6-1/2 years. All that has helped Egyptian assets outperform emerging markets in 2019.

It’s taken years for Egypt to rebuild investor confidence after the government turmoil that followed the Egyptian spring in 2011. While it’s still early going, the quick selloff shows how precarious that sentiment is.

To contact the reporter on this story: Paul Wallace in Dubai at pwallace25@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Stephen Kirkland

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