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MSCI could consider reclassifying Egyptian indexes amid the FX crunch: MSCI has said it could launch a consultation to reclassify its Egyptian indexes from “emerging” to “frontier” or “standalone” status “in the event of further deterioration of market accessibility in Egypt,” according to its annual Market Classification Review (pdf). The global index provider said that a shortage of hard currency is “affecting foreign investors’ ability to repatriate capital in a timely manner,” making our markets less accessible to investors abroad.
What’s the difference? MSCI groups the marketsit tracks into three main groups — developed, emerging, and frontier — according to “common characteristics” that “help investors better understand and compare” different markets and assess the risk level associated with investing in them. We’re currently considered an emerging market alongside countries like Saudi Arabia, Qatar, Turkey, and the UAE, meaning Egyptian equities are included in the MSCI Emerging Markets Index. Frontier markets in the region include Jordan, Morocco, and Tunisia. Standalone markets are either newly eligible for classification or have experienced “severe deterioration in market accessibility or size and liquidity”.— as in the case of Lebanon, for example.
REMEMBER- MSCI in May chose to make nochangesto securities classified in Egypt in its quarterly review, saying it could give the country “special treatment” in the wake of investor concerns over Egypt’s limited FX liquidity.
It’s not just us: “The challenging global macroeconomic environment” means that “various markets” are seeing low FX liquidity, “posing obstacles to the ease of fund repatriation for international institutional investors,” said Dr. Dimitris Melas, global head of index research and product development and chairman of the MSCI Index Policy Committee. The indexer is also monitoring how liquidity issues are impacting investors in Bangladesh, Kenya, and Sri Lanka, and is continuing a review into whether to reclassify Nigerian equities from a “frontier” to a “standalone” market.
