Egypt’s shares plunged into a bear market after MSCI Inc. said it may review the nation’s emerging-market status if a foreign-currency shortage worsens. Morocco’s index dropped following its cut to frontier status.
The EGX 30 Index tumbled 5.2 percent, the most since November, to 4,598.1 at the close in Cairo. The measure, the worst performer today among 94 indexes tracked by Bloomberg, has fallen 23 percent since a Sept. 26 peak.
MSCI said it “may be forced” to consider excluding Egypt from its emerging-market indexes if a foreign currency shortage were “to worsen and result in the inability of international investors to repatriate their funds.” Egyptian shares have slumped this year as political unrest continued to hinder 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.”
Egypt’s central bank said in March it took steps to “ease the exit of foreign investors” by providing banks with foreign currency on the same day they receive orders from foreign investors in Egyptian equities and debt.
Today’s drop extended losses this month to 15 percent as a protest movement seeks the resignation of President Mohamed Mursi, an Islamist who became Egypt’s first democratically elected president almost a year ago. The group, Tamarod, is calling for nationwide demonstrations on June 30, while some Mursi backers vowed to hit the streets that day in his defense.
Orascom Construction Industries, the biggest stock on the EGX 30 with a 28 percent weighting, slumped 2.8 percent, the most since March, to 227.69 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 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 fell 0.4 percent to 7,053.63, set for the lowest close 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 free float of its stock exchange in order to make the most of a bigger weighting on the MSCI FM Index.”
In Egypt, the government’s benchmark 5.75 percent Eurobonds maturing in 2020 slumped for a second day after the International Monetary Fund said it has no plan to send a team to Cairo to complete talks for a $4.8 billion loan. The North African country’s debt has been downgraded seven times at Standard & Poor’s since the 2011 revolt that ousted President Hosni Mubarak as foreign investors dumped local-currency assets.
The yield on the $1 billion of notes jumped 15 basis points to 8.71 percent, taking this month’s advance to 67 basis points.