Ahmed Kamel – Egypt daily News
Foreign investors have shown greater resilience toward Egyptian assets during the latest rise in oil prices, with portfolio outflows remaining far below the levels recorded after the first market shock earlier in 2026, according to Morgan Stanley.
The US investment bank said the limited scale of recent withdrawals suggested that investors had gained greater confidence in Egypt’s economic policy framework and its ability to withstand external pressures. Although the bank did not disclose the exact value of the latest outflows, it said the reaction of foreign investors was significantly less severe than during the initial phase of the year’s oil-price shock.
Morgan Stanley maintained its positive view of Egypt’s six-month Treasury bills, arguing that their yields remained attractive compared with the risks associated with the country’s currency and economy. Egyptian government debt has continued to draw interest from international investors seeking high returns, particularly as domestic interest rates remain well above those in advanced economies.
The bank’s assessment is based partly on the strength of real returns available in Egypt’s local-currency debt market. Although the Egyptian pound has weakened against the US dollar since June, high yields have helped compensate investors for a substantial portion of their currency losses. As a result, Egypt continues to appeal to investors prepared to accept exchange-rate risk in exchange for higher income.
Morgan Stanley said the Egyptian economy had shown considerable resilience despite continuing geopolitical tensions. Strong remittances from Egyptians working abroad, an improvement in Suez Canal revenues and relatively limited foreign portfolio withdrawals have helped support the country’s external position.
Remittances remain one of Egypt’s most important sources of foreign currency. They provide financial support to millions of households and help strengthen the banking system’s access to dollars. An improvement in Suez Canal income would also provide additional relief, particularly after previous disruptions to shipping in the Red Sea reduced traffic and affected one of the country’s main sources of foreign exchange.
Nevertheless, the outlook remains vulnerable to movements in oil prices and the exchange rate. Higher crude prices can increase Egypt’s import bill and put additional pressure on foreign-currency reserves. The country is both an energy producer and an importer, meaning the overall impact of rising oil prices depends on domestic production, fuel imports, government subsidies and global demand.
Morgan Stanley warned that a further depreciation of the Egyptian pound between 5% and 7% could lead to renewed foreign outflows. A weaker currency would reduce the dollar value of local-currency investments and could make international investors more cautious about purchasing Egyptian Treasury bills and bonds.
The bank also cautioned against an early resumption of interest-rate cuts. While lower borrowing costs would support businesses and households, an early reduction could reduce the yield advantage of Egyptian debt and encourage foreign investors to move their money to other emerging markets.
For that reason, Morgan Stanley expects the Central Bank of Egypt to leave its main interest rate unchanged at 19% at its September meeting and throughout the remainder of 2026. The bank’s forecast reflects uncertainty surrounding geopolitical tensions, inflation and the future direction of the Egyptian pound.
Recent inflation figures offer some support for keeping monetary policy tight. Annual urban inflation fell to 14.5% in August from 14.9% in July, while monthly price growth slowed to just 0.1%. The August reading was also below Morgan Stanley’s previous forecast, which had placed the expected peak at 15.2%.
However, the improvement in headline inflation does not yet indicate that price pressures have disappeared. Core inflation rose to 14.9% in August from 14.7% in July, showing that underlying pressures remain present. The recent decline in headline inflation was driven largely by lower food prices, while increases in electricity and other non-food categories continued to affect consumers.
Morgan Stanley expects urban inflation to decline to 13.2% in September and fall below 13% from October. It forecasts a further slowdown to 11.8% by December. If that projection is achieved, the decline in inflation would increase the real return offered by Egyptian Treasury bills, provided that interest rates remain unchanged.
This combination of high nominal yields and falling inflation is central to Morgan Stanley’s positive outlook for six-month Egyptian Treasury bills. Investors could benefit from a wider gap between the return on government debt and the rate at which consumer prices are rising. However, those gains could be eroded quickly if the pound suffers another sharp decline.
Egypt’s debt market therefore remains attractive but exposed to several risks. Strong remittances, improving Suez Canal revenues, lower inflation and the country’s high interest rates are supporting demand from foreign investors. At the same time, currency depreciation, higher oil prices and premature monetary easing could undermine that confidence.
For international investors, the key issue is whether Egypt can preserve its high yield advantage without allowing exchange-rate losses to reduce the value of their investments. Morgan Stanley’s latest assessment suggests that investor confidence has improved, but continued support for Egyptian assets will depend on stable economic policies, falling inflation and greater regional stability.
