(Bloomberg) -- Egypt's stocks and foreign bonds advanced after the central bank said it would allow the currency to float as part of measures designed to tackle a dollar shortage that has sapped economic growth.
The EGX 30 Index rallied 3.4 percent, the best performance among more than 90 measures tracked worldwide by Bloomberg, to the highest close in 17 months. The gains sent company valuations based on future earnings to the highest level in more than a year. The yield on the nation's dollar bonds due 2025 tumbled the most since July on a closing basis. The pound weakened 45 percent.
The following are highlights from Egypt's markets on Thursday:
- The yield on Egypt's $1.5 billion debt fell 47 basis points to 6.63 percent
- Twelve-month non-deliverable forwards for the Egyptian pound weakened to a record 16.55 per dollar
- The EGX 30 Index's 14-day relative strength index climbed into overbought territory
- Commercial International Bank Egypt gained 5.7 percent, leading the stock advance
- About 454 million shares were traded on the main gauge, the most since August
The central bank said it would allow the currency to float and raise interest rates by 300 basis points in a bid to restore confidence to an economy still recovering from a series of uprisings that toppled two leaders in less than six years. The moves would bring the nation closer to securing a $12 billion loan from the International Monetary Fund, helping attract foreign cash back into the market. Stock investors would still have to contend with capital controls that curb the repatriation of profit, which regulators imposed due to the dollar shortage.
“The market is in a state of complete euphoria; the long wait has finally come to an end,” said Mohamed Radwan, head of equities at Cairo-based Pharos Holding. “We're going to enjoy this rally as much as possible, because the reality of decisions like raising interest rates by 300 basis points could soon kick in.”
Pound Tumbles
The pound slid to 16 against the dollar, according to quotes from six lenders including Commercial International Bank Egypt SAE, as of 8:31 p.m. in Cairo. Allowing the currency to devalue brings the pound's official rate closer to its black-market counterpart, narrowing a gap that has deterred overseas investors.
The government sold local-currency debt at the highest yields ever after Thursday's rate increase, including an offering of 12-month notes at 20.52 percent, up from 16.84 percent at the previous auction. It raised a total of 8.8 billion pounds, 23 percent below its target, according to central bank data on Bloomberg.
The EGX's price-to-earnings ratio for the next 12 months rose to 10.2 times, the highest level since July 2015. The gauge's 14-day relative strength index jumped to 73, above the threshold that signals to some investors the measure has risen too quickly.
Twenty-three of the index's 30 members rose, led by Commercial International Bank Egypt SAE. The lender, which accounts for 40 percent of the gauge, climbed to a record 55.16 Egyptian pounds. Talaat Moustafa Group's 4.7 percent advance was the second-biggest contributor the measure's gain.
To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net, Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net. To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Stephen Kirkland
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