CAIRO: Aberdeen Asset Management sees potential opportunities in Egypt after the popular uprising there but is waiting for the outcome of elections before returning to the local treasury bill market.
Aberdeen was overweight on Egypt before the February ousting of president Hosni Mubarak changed the political climate, sent the economy into a tailspin and brought social tensions further into the open.
Some investors have said that confidence may be returning. Egypt’s currency has stabilized and the precipitous decline in central bank foreign reserves has slowed.
But on Monday, renewed anti-government protests sent the local equity market down 2.9 percent to its lowest since mid-May as Egyptians press for swifter reforms and faster prosecution of Mubarak and his allies.
Before taking the plunge into the market, foreign investors seem to be waiting for parliamentary elections planned for September to see whether Egypt is heading for stable democracy.
"There is a bit of stability now, especially on the FX. We don’t really think the pound is going to go above 6 to the dollar this year. So that provides some space for investors," Aberdeen emerging market investment analyst Anthony Simond said.
"(With Egyptian T-bills) at 12 percent, that is very attractive in a world where people are searching for decent returns," said Simond, whose team manages about $6.5 billion worth of emerging market debt.
He said he would consider investing in Egyptian T-bills, but not in maturities greater than three months.
"We wouldn’t be going for dollar bonds as I think they are kind of expensive," Simond told Reuters by telephone.
Sustainable deficit
Egypt’s government has turned down loans from the International Monetary Fund and the World Bank for now and has sought help from Gulf Arab states to finance higher state salaries and increased subsidies.
"Even though there is conditionality attached to an IMF loan, it does provide a bit of stability," said Simond. "You know what you’re getting. You know the IMF is going in to do reviews."
"But we believe the temporary government doesn’t want to load up with future debt before a democratically elected government comes in. They are still going to work with the IMF and World Bank, so we don’t see this as too much of an issue."
Finance Minister Samir Radwan announced a narrower budget deficit in the current July-to-June fiscal year after reining in his borrowing plans last month, and now forecasts a deficit equivalent to 8.6 percent of gross domestic product.
"I think the market will give them some leeway, but we will be looking for a quite coherent plan going forward to reduce the deficit to a more sustainable level," said Simond. "They will want to look at under 5 percent of GDP."
He played down the possibility that Aberdeen would return to Egypt before the elections.
"I think the potential elections in September are quite an important milestone and we will look for more information on that, see where the trend is heading, what different parties arrive and how well they do," said Simond.
