"Hot Money" Partially Returns to Egypt After Recent Capital Outflows

Foreign investors resumed net purchases in Egypt’s secondary market for government debt instruments for the second consecutive session, signaling a partial return of so-called “hot money” following a wave of capital outflows triggered by escalating tensions in the Middle East.

According to data from the Egyptian Exchange, foreign investors purchased government bonds worth around EGP 412 million (approximately $7.8 million) during Sunday’s trading session.

Although the amount remains relatively modest, it follows a stronger inflow recorded last Thursday when net foreign purchases reached about $1.03 billion. The renewed buying activity has temporarily slowed the large-scale capital flight estimated at roughly $6.7 billion, which began on February 19 as geopolitical tensions intensified between the United States and Iran.

Ibrahim El-Nimr, head of technical analysis at Naeem Brokerage to CNN that the partial return of foreign capital reflects investor optimism that the Middle East conflict may be resolved sooner than expected.

“Some investors and institutions allocate part of their portfolios to higher-risk bonds to benefit from elevated interest rates, which appears to be happening in Egypt’s debt market at the moment,” El-Nimr said.

Another key factor supporting demand for Egyptian treasury instruments is the strength of the U.S. dollar against the Egyptian pound. The exchange rate reached EGP 52.58 per dollar in official banks by the end of Sunday’s trading, enabling investors to purchase larger volumes of treasury bills as the local currency weakens.

El-Nimr compared the current situation with developments in 2025, when investors who purchased 365-day treasury bills early in the year at an exchange rate of EGP 50.79 per dollar exited the market later with profits from both interest yields and exchange-rate gains.

At that time, interest rates ranged between 23% and 25%, according to data from the Central Bank of Egypt.

Foreign investments in Egyptian government debt, commonly referred to as hot money, represent a key mechanism for attracting foreign currency liquidity to help finance public spending. These funds typically enter and exit the country in U.S. dollars, making sudden withdrawals during periods of geopolitical instability a significant concern for an economy that relies heavily on foreign currency inflows.

Egypt previously experienced a major wave of capital flight following the Russian invasion of Ukraine, when roughly $22 billion exited the country’s debt market, causing significant pressure on the local economy.

Analysts say the future trajectory of foreign investment in Egyptian treasury instruments will largely depend on developments in the ongoing Middle East tensions, with market performance in the coming days expected to provide clearer signals about investor sentiment.