Stock market up as intl equity firm re-evaluates Egypt

News that global equity firm Morgan Stanley Capital International is no longer considering removing Egypt from its emerging market index pushed the Egyptian stock market to a two week high.

The benchmark EGX30 index rose 1.65 percent to close at 8708.69, the highest level since May 28, when markets plunged in response to news of proposed taxes on dividends and capital gains. 

In a press statement, EGX Chairman Mohamed Omran said the decision is a positive turning point for the Egyptian market, and confirmed the confidence of international institutions in the EGX and in the broader investment climate in Egypt. The MSCI index, he said, is one of the major indicators investors use to evaluate the health of markets.

Since 2001, Egypt has been a member of MSCI’s emerging market index, which tracks the performance of 21 stock markets, including economic powerhouses like Brazil, Russia, India and China. In order to remain on the index, countries must meet MSCI’s criteria for sustainability of economic development, market size and liquidity, and accessibility.

In its June 2013 annual review, MSCI put Egypt on notice that it risked being downgraded to the company’s frontier market index, saying it was “closely monitoring the situation … in particular the country’s foreign exchange market.” In addition to concern that low foreign reserves and capital controls might make it difficult for international investors to repatriate funds, the report noted that Egypt’s deteriorating Forex situation could result in a lack of liquid investable stocks.

At the end of May 2013, Egypt's foreign reserves stood at US$16.03 billion, after falling to a low of $13.4 billion in March of that year.

Since the overthrow of former President Mohamed Morsi, reserves have stabilized, largely thanks to regular infusions of cash from the Arab Gulf. At the end of May they reached $17.28 billion.

In its 2014 review, released on Tuesday, MSCI noted that, “following the substantial increase in foreign currency reserves … it is no longer considering launching a public consultation on a potential exclusion of the MSCI Egypt Index from the MSCI Emerging Markets Index.”

According to Omran of the EGX, the re-evaluation came after months of negotiations “to ensure a positive investment environment in Egypt,” including cooperation from the Central Bank of Egypt to remove obstacles facing foreigners wishing to invest in Egypt or transfer funds out of the country.