Foreign investors are returning to Egypt after MSCI Inc. preserved the North African country’s emerging-market status and the former army chief won the presidency in a landslide.
The CHART OF THE DAY shows non-Arabs purchased 2.9 billion Egyptian pounds ($406 million) of stocks from June 11, the day after the index provider said it’s no longer considering cutting the country’s status to a frontier market, through Aug. 27. That’s almost eight times the amount they purchased in 2014 before the announcement, according to Egyptian Exchange data. The EGX 30 Index has rallied more than 35 percent this year in dollar terms, making it the world’s third-best performer.
MSCI’s decision was “a bit of surprise,” Larry Seruma, chief investment officer of Nile Capital Management LLC, which holds $100 million of equities in Africa and frontier markets, said on Aug. 27 by phone from Princeton, New Jersey. “A lot of emerging-market managers had reduced their allocations to Egypt on expectations that it would be downgraded. When that didn’t happen, they bought to restore its weight in their portfolios.”
Foreigners dumped a net 7.3 billion pounds of shares from the start of 2011 through March 30 this year following the overthrow of Hosni Mubarak in a popular revolt and as the army removed Mohamed Mursi from power last year. Abdel-Fattah el-Sisi won the presidency with 97 percent of the vote at the end of May, before MSCI said a “substantial” increase in Egypt’s foreign currency reserves put to rest concerns of a shortage.
Stabilization of the Egyptian pound is also helping preserve profits for overseas investors. The currency, which has tumbled 19 percent since the turmoil started, halted its depreciation against the dollar on May 29, the last day of voting in Egypt’s presidential election. The pound is subject to a managed float by the central bank.
“We think Egypt has effectively turned the corner with regards to the unrest,” Seruma said. “More political confidence is driving inflows.”