(Bloomberg) -- Egypt is stepping up efforts to rejoin a key JPMorgan Chase & Co. bond index that’s tracked by more than $200 billion worth of emerging-market funds, according to people familiar with the matter.
The North African nation was dropped from JPMorgan’s Government Bond Index-Emerging Markets on Jan. 31 and isn’t eligible to be considered for re-inclusion for a minimum of 12 months from its removal.
That means the next likely development is for JPMorgan to place Egypt on its watchlist in the first half of 2025, according to the people. This would set the stage for a possible decision by the end of next year on whether it can rejoin, although sometime in 2026 is more likely, they said.
The people asked not to be identified as the deliberations are private. Egypt’s finance ministry couldn’t be reached for comment. JPMorgan declined to comment.
The early 2024 exclusion came as Egypt suffered from a dire foreign-exchange crunch that left overseas investors struggling to convert their money in what was once a favorite location. There’s been a turnaround since, with the country now buoyed by investments and loans from a $57 billion global bailout led by the United Arab Emirates and International Monetary Fund.
A favorite among carry-trade investors for years before the Covid pandemic, Egypt is regaining its allure after authorities in March allowed the pound to plunge about 40% against the dollar, saying the market should determine the exchange rate. It also raised interest rates 600 basis points to 27.25%.
Some emerging-market investors are now also lobbying for Egypt’s reinclusion in the JPMorgan index, which would allow them to invest in local-currency debt at what they consider attractive prices, according to the people.
But the fact that Egypt has been delisted twice in the past decade and half — the first during the political upheaval of 2011 — makes the decision an especially carefully-considered one. JPMorgan needs to have strong confidence in the country’s financial indicators first, the people said.
Fears of an Egyptian default have faded, while yields on bonds have been exceeding 20 percentage points and the inflation-adjusted policy rate has turned positive for the first time in years, adding to bullish sentiments.
So far, most of the new foreign portfolio inflows have been into short-term Treasury bills. A JPMorgan relisting would allow the Egyptian government to attract long-term investments from passive funds that track the gauge.
The recent trajectory of India’s bonds suggests the possible impact. Representing a much larger market, they’re among the best performers in Asia, supported by foreign inflows of about $13 billion to date. That was largely spurred by the notes’ inclusion in JPMorgan’s emerging markets index in June.
--With assistance from Jorgelina do Rosario and Srinivasan Sivabalan.
©2024 Bloomberg L.P.
