Egyptian stocks rallied to fresh highs this week even as tensions escalated in the Middle East, as local investors poured in to hedge against expectations of another currency devaluation and record inflation.

Egypt has devalued the pound three times since early 2022, with the currency losing almost half its value against the dollar. The head of the International Monetary Fund this month warned the country will “bleed” precious reserves unless it allows the currency to weaken again. The country is also in talks to boost its rescue program to over $5 billion.

That’s helped drive a 52% rally in the benchmark EGX 30 this year, with gains exacerbated this week by what some have called “panic buying.” The index is the second-best performer this year in local currency terms among 92 benchmarks tracked by Bloomberg. In dollar terms, it’s up 21%.

Egyptian traders account for nearly 85% of the value that changed hands on the stock exchange this year, according to data from the bourse that excludes deals.

“News of the effort to enlarge the IMF loan have acted as a catalyst for Egyptian stocks but this remains largely a market for local investors to hedge very high inflation,” said Hasnain Malik, a Dubai-based strategist at Tellimer, which provides research and data on emerging markets to investors.

High local participation is also a phenomenon common in other emerging markets like Turkey and Nigeria as a way to protect savings.

Faced with a plummeting currency over the past year, Egyptian investors have abandoned a traditional wariness of equities and embraced them as a last resort, said Abdelkhalek Mohammed, equity analyst at Prime Securities. Divye Arora, a senior portfolio manager at Daman Investments, said most of the flows were going into either real estate or companies with a strong dollar income.

Egypt, a top wheat importer, has struggled as a result of Russia’s invasion of Ukraine amid soaring food prices. The country is set to hold presidential elections in December — earlier than expected — as authorities face pressure to take steps to unlock funding from the IMF, including another pound devaluation.

That complex backdrop was already keeping foreign investors away from Egyptian stocks, and the conflict between Israel and Hamas may further complicate the nation’s economic outlook. Egypt has emerged as a key player as the humanitarian situation worsens in Gaza, and has rejected any idea that it could host Gazans displaced by the fighting between Israel and Hamas.

“Foreign investors are unwilling to commit fresh capital in advance of another expected chunky devaluation and amid repatriation challenges,” Tellimer’s Malik said.