* IMF talks expected after Eid holidays
* Stocks may move sideways until talks show progress
* Bank acquisition talks also key to sentiment
* An IMF deal could permit interest rate cut
* Money market liquidity improves, less dollarisation
By Edmund Blair
CAIRO, Oct 24 The mood of Egypt's financial
markets is likely to depend heavily next week on the
government's progress in securing a $4.8 billion loan from the
International Monetary Fund.
An IMF team is expected to come to Cairo for talks after the
Eid al-Adha holidays, which run from this Thursday through
Sunday, according to Egyptian and IMF officials.
IMF Managing Director Christine Lagarde was quoted by
Egypt's MENA news agency in Washington as saying she was
"optimistic that the loan negotiations would be completed by
A loan deal would for the time being lay to rest lingering
concern in the markets that Egypt might run out of foreign
reserves to support the value of its currency. Reserves have
dropped by more than half since the start of last year.
But well before any loan agreement is reached, markets will
be sensitive to any indications from the talks of whether the
IMF is satisfied with Egypt's plans for economic reform.
Its benchmark stock index has surged and yields on
government debt have fallen since President Mohamed Mursi took
office in June, starting a period of relative political
stability after months of turmoil since last year's uprising
against Hosni Mubarak.
But state finances are still fragile because the government
has not delivered on promises of reform, including action to
rein in hefty fuel subsidy payments, which is seen as essential
to securing the release of IMF cash.
"The thing about the IMF loan is market confidence," said
Omar Ascar, head of trading at Cairo Capital Securities, adding
that he expected stocks to drift sideways until there were
developments with both the IMF and the efforts of foreign
institutions to acquire stakes in Egyptian banks.
There are signs that Egypt is again drawing interest from
foreign investors, but two big deals in the works have yet to be
Qatar National Bank has expressed interest in buying
majority French-owned National Societe Generale Bank (NSGB)
, while QInvest, another Qatari firm, has Egyptian
regulatory approval to tie up with EFG-Hermes.
Egypt's stock index has moved sideways for the past month.
But Mohamed Radwan at Pharos Securities said there was a good
chance for its uptrend to resume after the holidays.
"After Eid, with the IMF delegation on the ground and the
likely closure of the QNB-NSGB deal, we expect some decent
gains," he said.
The index nudged above the 6,000-point mark during two
trading sessions in September, the first time it reached that
level since the uprising against Mubarak began in January 2011.
So far it has not closed above that mark. But it is still
more than 50 percent higher than it was at the start of 2012,
putting it among the world's best-performing equity markets.
Also reflecting greater confidence in Egypt, yields on
Egyptian Treasury bills have been sliding. Since Mursi's
election, the yield on 91-day bills has dropped more than 2
percentage points to under 12.5 percent.
Youssef Kamel, a fixed income analyst at financial firm
Rasmala, said yields would probably stabilise or might even
nudge higher until the IMF deal was secured or Egypt obtained
other external support.
The country has secured some aid from Gulf and Western
states, and if it can start to replenish its foreign reserves,
the central bank may feel it has room to cut interest rates to
spur economic growth. Last week the central bank decided at a
meeting to keep rates steady, apparently because it did not want
to risk undermining the Egyptian pound.
Kamel noted that liquidity in the local money market had
improved, with some funds shifting from dollar accounts into the
"The amount of cash parked at the Central Bank of Egypt
overnight has risen significantly over the past two weeks or
so," he said, adding that it had been climbing since June.
"The accompanying drop in dollarisation also hints at
increasing confidence in the Egyptian pound."
The amount of money which commercial banks are seeking from
the central bank at its money market operations also seems to
have dropped, suggesting banks have more liquidity at their
"Despite the introduction of the 28-day repo facility on
July 10, the total amount of repos demanded by banks fell
significantly during the quarter (to Sept. 30), after having
increased to record highs in June," Kamel said.