Egypt Stocks Drop as MSCI Says FX Shortage May Trigger Downgrade

Egypt’s shares headed for a year low after MSCI Inc. said it may review the nation’s emerging-market status if the foreign-currency situation worsens. Morocco’s index was little changed as it was cut to frontier status.

The EGX 30 Index tumbled 3.8 percent to 4,662.94 as of 12:32 p.m. in Cairo, poised for the lowest close since June 2012. The measure, the second-worst performer today among 94 indexes tracked by Bloomberg, has fallen 22 percent since a September 26 peak. A drop of 20 percent or more signals a so-called bear market to some investors.

MSCI said it “may be forced” to consider excluding Egypt from its emerging-market indexes “were the situation on the Egyptian foreign-exchange market to worsen and result in the inability of international investors to repatriate their funds.” Egyptian shares have slumped this year as political unrest hindered an economic recovery and as the pound weakened 9 percent amid central bank efforts to curtail a drop in foreign-currency reserves. Egypt was added to MSCI’s EM index in 2001.

“The mood is very negative,” Ahmed Abu Taleb, foreign sales trader at Cairo-based Pharos Securities, said by phone. “Concerns are high after MSCI reclassification talks.”

Morocco Reversal

Orascom Construction Industries, the biggest stock on the EGX 30 with a 28 percent weighting, slumped 3 percent, the most since March, to 227.1 pounds. The company will ask shareholders this month to approve a plan that will involve swapping their shares with stocks in Amsterdam-listed OCI NV (OCI) or selling them for 255 pounds a piece. The potential exit of Orascom Construction from the EGX “will increase the likelihood” of an MSCI downgrade, Abu Taleb said.

Morocco’s benchmark MADEX Free Float Index was little changed at 7,080.63, near the lowest level since 2006. MSCI cut the country from emerging-market status due to its failure to meet liquidity standards for several years. The trend “has shown no sign of reversal,” it said.

“Foreigners appear to have already made their moves before this downgrade, which lacked the element of surprise,” said Bachir Tazi, head of sales and trading at Casablanca Finance Group. “Morocco will need to improve liquidity and the freefloat of its stock exchange in order to make the most of a bigger weighting on the MSCI FM Index.”

To contact the reporters on this story: Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net; Tamim Elyan in Cairo at telyan@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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