Bank of America Merrill Lynch said Sunday it would hold Egypt at Marketweight as lower oil prices ease fiscal strains but spreads remain tight on a ratings-adjusted basis with the possible lack continued GCC support.
Valuation remains expensive on a ratings-adjusted basis due to the perceived GCC put and robust local bid in parts of the curve, a report titled “Emerging Conviction” compiled by Merrill Lynch added.
Spreads are pricing in macro improvement following reforms and low oil prices that ease fiscal strains, but have now started to adjust.
“Politics (transition, governance and security) and a domestic run on Egypt’s pound are risks,” noted Merrill Lynch.
The socioeconomic impact of fiscal reforms, Egyptian pound weakness, failure to mobilize sufficient external financing or GCC aid and fiscal consolidation slippage are negative risks, it stated.