Egypt is being put on review for potential removal from JPMorgan’s widely-tracked suite of emerging-market sovereign bond index es, Reuters and Bloomberg quote the investment bank as saying last week. The US bank will review Egypt’s eligibility for its Government Bond Index-Emerging Markets (GBI-EM) series over the next three to six months, with the country’s sovereign bonds remaining in the index during the review period. JPM’s remarks do not appear to be in the public domain.

Blame the FX crunch: Investors are facing “material” hurdles repatriating currency from local bonds, JPMorgan said. “If the hurdles cited by benchmarked investors persist, a status review will be triggered for Egypt’s removal from the GBI-EM series.”

Remember: The country remains in the grip of an ongoing hard currency shortage, triggered in part by major foreign portfolio outflows as global economic conditions tightened following the outbreak of the Russia-Ukraine war. That FX liquidity crunch — alongside continued uncertainty about where the USD-EGP exchange rate could settle — may make it hard for foreign investors to repatriate the returns on their EGP-denominated bonds.

We only recently re-entered the index: In a boon for passive inflows to the local debt market, 14 EGP-denominated sovereign bonds worth around USD 26 bn were added to the GBI-EM Glob al Diversified I ndex last year, giving Egypt a weighting of 1.85%. This was the first time Egypt re-joined the GBI-EM after it was kicked off the index in the wake of the volatility triggered by the 25 January revolution in 2011. Egypt’s weighting in the index has since fallen to 1%.

JPMorgan isn’t the first to consider reclassifying Egyptian assets: Global index provider MSCI in June said it could consider reclassifying the status of its Egyptian indices from “emerging” to “frontier” or “standalone” status, citing the FX liquidity crunch.

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