Egyptian pound allowed to float freely

The Egyptian pound was set into free float by the Central Bank of Egypt from the 8.8 to a dollar peg on November 3, 2016. The move was an attempt to attract foreign currency and boost investor confidence in the government’s intent to push through economic reforms.

The cheer was reflected in domestic stocks, which jumped 8% after the announcement while the pound expectedly crashed.

Early in 2017, the pound remained weak against the US dollar (UUP), but February saw a sharp bout of strength throughout the month due to dollar inflows, which made the currency one of the best performers against the dollar.

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Egypt’s treasury bills bore the brunt of this sudden strength in the pound as foreign buyers shunned the auctions.

Watching the Egyptian pound

The Egyptian pound may serve as a barometer of investors’ interest into the country for 2017. The sharp strengthening in February was followed by weakening in March, which has brought foreign investors back in the Treasury market. Meanwhile, the country’s forex reserves have swelled to the highest level since 2011.

Freeing the pound shows the commitment the government has towards enacting reforms – an aspect which is enticing to international investors. If the currency does not strengthen too much in a short period of time, foreign investors may continue to remain interested in buying Egyptian stocks and bonds.

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Investing in Egyptian equities

The VanEck Vectors Egypt Index ETF (EGPT), benchmarked to the MVIS Egypt Index, is the only ETF available to US investors which provides exposure to Egyptian stocks. It has risen 7.8% in the past three months. The ETF is relatively small, with $52.3 million in assets, and is expensive, with a net expense ratio of 0.98%. It is invested into 26 holdings and is dominated by financials and real estate sectors.

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