Outlook Still Cloudy For The Egypt ETF [Market Vectors Egypt Index ETF(NYSEARCA:EGPT)]

egyptThe emerging market space piled up heavy losses in 2013 and this trend continues this year as the Fed has finally started a measured taper. Sluggish currencies, rising inflation and political disorder also added to the woes of emerging markets.

Despite dreadful conditions  in the broader space, some markets have managed to continue their uptrend. Egypt has lately shown signs of strength and is way ahead of most other developing nations to start the year. After struggling in the past three years, the Egyptian economy is turning the corner, as both political and economic situations seem to be cooling.

Bright Spots

Following the tough crackdown on the Muslim Brotherhood in July 2013, the Egyptian economy was supported by funding from several Gulf nations in recent months. The Gulf countries – Kuwait, Saudi Arabia, and the United Arab Emirates – have finally pledged $12 billion in financial aid, boosting business confidence and the future growth for Egypt.

This would result in capital inflows leading to lower interest rate, availability of foreign currency and rise in foreign reserves. Though foreign exchange reserves arestill 47% below $36 billion three years ago, it increased to $17.03 billion in December from $15.01 billion in the same month a year ago. Meanwhile, inflation eased to 12.5% annually in December after hitting the three-year record high 14.2% in November.

In order to regain more political and economic stability, the Egyptian government is pumping billions of dollars into the economy. It has already announced the stimulus package of $3.2 billion for economy and is planning for the second stimulus of $4.36 billion (read: 3 Best Performing Country ETFs of 2013).

Earlier this month, Fitch revised the economic outlook for the country from negative to stable, citing substantial improvement in its political condition. This represents the first upgrade since January 2011. In November, Standard & Poor’s also maintained its stable outlook on Egypt.

The World Bank expects the Egyptian economy to pick up slowly from an estimated 2% in 2013 to 2.2% in 2014 and 3.3% in 2016. If achieved, this would be the highest growth rate for 2014 in four years.

If this isn’t enough, Egypt is expected to reach to the  twenty-eighth position in the world by 2023 and twenty-second position by 2028 from the current forty-fourth position, as per the Centre for Economic and Business Research, if stability continues and no severe pain strikes the nation.

Further, falling currency is bolstering exports from the country and stimulating domestic production.

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