CAIRO - Egypt's reputation as an emerging market star lost some of its sparkle last month when street protests revealed a population yet to benefit from years of economic reforms that had impressed investors. That reality check may prove to be uncomfortable.
Rare protests against President Abdel Fattah al-Sisi served as a reminder of the turmoil that followed the 2011 overthrow of Hosni Mubarak, briefly upsetting the country's $12 billion stock market and putting pressure on its sovereign debt.
Markets stabilized this week after security forces managed to deter more dissent, reassuring investors who had piled in since Cairo struck a $12 billion loan deal with the International Monetary Fund in 2016.
Devaluing its currency in 2016 and embarking on reforms, Egypt implemented austerity to help cut the deficit.
Yet investors fear authorities might roll back measures such as a cut in subsidies for fuel and other goods which have proved painful for Egyptians, a third of whom live below the poverty line.
"Investors are wary of the risk of fiscal slippage through the reversal of subsidy reforms or raising spending on public sector wages or cash transfers," said Farouk Soussa, senior economist with Goldman Sachs.
"The main risk is that any fiscal slippage could reduce the likelihood of Egypt coming to an agreement with the IMF over a new deal after the current one expires in November."
In a possible first sign of such slippage, the supply ministry said it had returned 1.8 million people to its food subsidy plan since February, following earlier cuts in the programme.
"We are watching the government's response to this vocal but small minority to see if there's any type of populist policy response which would derail the economic reform programme," said Marshall Stocker, a portfolio manager at U.S.-based investment management firm Eaton Vance.
Egypt's domestic government bond market has proven a hit with investors hunting for yield in a world where central banks are pushing interest rates ever lower. Yields of Egypt's sovereign bonds in the JPMorgan emerging local bond benchmark are near 14% - the highest across the index.
In August, foreign holdings of government debt including bills and bonds reached $20 billion, a sharp recovery from the $31 million trough in 2015 in the wake of the Arab Spring.
"The reality is that as a foreign investment destination these past few years Egypt has not been attractive beyond the sale of short term debt, thanks to offering some of the highest interest rates on the market," said Timothy Kaldas from the Tahrir Institute for Middle East Policy.
But the combination of large financing requirements - Cairo needs to raise $6-7 billion in the next financial year, analysts say - and lack of detail on future engagement with the IMF beyond November means the best times for investors may be over.
Egypt has a large financing need and "that can be challenging without an IMF backstop", said Ray Jian, head of EM aggregate debt at Amundi.
Equities listed on Cairo's $12.2 billion bourse have also been popular: MSCI's Egypt stock index has soared 32% since the start of the year compared to the overall emerging equity index which has eked out a 3.6% gain over the same period.
Allocations to Egyptian stocks among emerging market equity fund managers have ticked up in recent months with average holding weights hitting 4-year highs, according to Copley Fund Research.
There is some genuine discontent among ordinary Egyptians, said Andrew Brudenell, lead senior portfolio manager for frontier markets equities at Ashmore Group, adding that reforms were taking time and benefits had not yet trickled down to much of the population. "Hopefully this is just on the cusp of changing," he said.
But Hasnain Malik, managing director, frontier markets equity strategy at Tellimer, said last week's fall of 6% in the benchmark was not justified.
"The Egypt market is still attractive compared to other emerging markets," he said.
The reforms have helped temper inflation but have failed to create jobs to meet the demands of a country of 100 million.
Foreign direct investment (FDI) fell to $5.9 billion in the 2018/19 fiscal year from $7.7 billion the previous year - a far cry from the $11.5 billion foreseen by the IMF at the outset of its Egypt programme and the revised $9.5 billion from April.
Businessmen blamed bureaucracy, a slow judiciary and an expansion of firms linked to the military. Growth rose to 5.6% in 2018/19.
"Egypt needs growth of 6,7,8% of private sector led growth if people are going to feel it and living standards are generally going to increase," said Gregory Smith, sovereign debt strategist at Renaissance Capital.