Citi indicated that there are rising concerns about a generalized sell-off in emerging market assets, rather than an idiosyncratic sell-off in a limited number of countries. It noted that these concerns have started to materialize in Africa, as reflected in the selling of Egyptian and Nigerian assets. It said that the Egyptian pound and the Nigerian naira have remained stable despite outflows of foreign portfolio investments from their domestic debt markets. But it indicated that the foreign currency reserves of Egypt and Nigeria have started to come under pressure, which, along with a stronger US dollar, could raise concerns about the countries' currency stability. Further, it expected both countries to continue to face high inflation rates in coming years, which increases the possibility of a revaluation of both currencies. But it anticipated the policy response of the Central Bank of Egypt (CBE) and the Central Bank of Nigeria (CBN) to be different.

First, Citi noted that the period of portfolio outflows from Egypt coincided with strong remittance inflows, which contributed to the ongoing stability of the pound. It added that although some of the outflows were transferred through the interbank foreign exchange market, which would put pressure on the pound, a portion of the outflows was channeled through the CBE's existing repatriation mechanism, which limited the pressure on the interbank market. It considered that the CBE has significant capacity to meet further outflows from its Tier II foreign currency reserves that reached $13bn at end-June 2018. But it expected the CBE to remain committed to a cautious easing of its monetary policy amid signs of economic improvement. Second, Citi pointed out that the CBN used portfolio inflows to rebuild its foreign currency reserves. It estimated portfolio inflows in Nigerian debt securities in the 12 months ending June 2018 at $12.6bn. It added that the CBN resorted to open market operations (OMO), rather than to raising its official policy rate. It considered that the CBN has two advantages over the CBE, which are the higher oil prices and a greater willingness to continue to tighten monetary policy by allowing a sharp rise in interest rates through its OMOs.  
Source: Citi Research