Egypt surges over 5 pct after currency devaluation

A customer counts his US dollar money in a bank in Cairo, Egypt March 10, 2016. (Reuters)

Cairo’s stock market jumped over 5 percent in early trade on Monday after the central bank devalued the currency, raising hopes that the country’s endemic foreign exchange shortage could be resolved.

Egypt’s central bank said on Monday it had devalued the Egyptian pound to 8.85 per US dollar at a special foreign exchange auction. It had previously set the average bid price at its regular and exceptional auctions at 7.73.

Cairo’s main stock index surged 5.3 percent after the news in extremely heavy trade.

“Markets are rallying quickly to reprice Egyptian assets after the devaluation,” said Simon Kitchen, head of regional strategy at Cairo’s EFG Hermes.

Financial and real estate stocks are outperforming as such companies may be the first to benefit from the devaluation, he added.

Commercial International Bank surged 7.0 percent and investment bank EFG Hermes jumped 9.9 percent. Real estate developers Egyptian Resorts and Talaat Mostafa Group each climbed more than 8.0 percent.

A lower Egyptian pound, and a sense that the currency is no longer overvalued, could attract fresh capital flows into the country from Egyptians abroad as well as foreign investors. For the past several years, the risk of a devaluation had deterred foreigners from putting money into Egypt.

The devaluation is expected to boost inflation, but this could in some ways benefit real estate firms if Egyptians buy property as a hedge against inflation.

Last week the stock index rallied 7.8 percent, breaking above its February peak in a bullish technical signal, as the central bank relaxed measures to ration foreign exchange.

Foreign investors, who have been largely absent from the market this year, have started in recent days to show more interest in Egyptian shares.

“The bottleneck has finally been relieved and we expect the market to rally after trading sideways since the start of the year,” said a Cairo-based trader.

Last Update: Wednesday, 20 May 2020 KSA 09:46 - GMT 06:46