Egypt maintains its classification as an emerging market by FTSE Russell... and experts comment

Egypt maintained its classification as a secondary emerging market with the FTSE Russell International Foundation, which specializes in preparing financial market indicators and classifications, after the Egyptian market was removed from the Foundation’s watch list, in a step that supports the presence of Egyptian companies before international investors, amid efforts to enhance the competitiveness of the financial market and expand the investor base. The decision came after a period during which the Egyptian market was being monitored by FTSE Russell regarding the extent to which it met international standards and requirements, while its continued classification among emerging markets represents an important factor in maintaining its presence before investors and funds that follow global indices.

The Chairman of the Egyptian Stock Exchange said that the market has proven its ability to face challenges, adapt to them, and maintain its efficiency and attractiveness, noting that the stock exchange has a diverse base of listed companies, and that the next stage aims to deepen the market, enhance its competitiveness, and expand the investor base. He added that three Egyptian companies, namely Talaat Mostafa Group, Telecom Egypt, and Commercial International Bank, met the requirements of the medium-capitalization companies category, which enhances the presence of Egyptian companies in emerging market indices and expands the base of potential investors.

In parallel with maintaining the market's position within emerging markets, the Egyptian Stock Exchange seeks to increase international visibility and enhance transparency, in addition to developing financial products and services, technological infrastructure, and trading and disclosure mechanisms, in a way that supports its ability to attract more investments. The General Manager of Watheqa Securities Trading Company, Dr. Medhat Abdel Hadi, said that Egypt’s exit from FTSE Russell’s watch list represents a positive development for the Egyptian market, after there were fears of downgrading its classification from emerging markets to frontier markets, which would have led, if it had happened, to the exit of foreign investments and a decline in the attractiveness of the Egyptian market for a long period.

He explained that Egypt succeeded in meeting the standards that FTSE Russell was following, most notably trading values ​​and volumes, noting that the market had previously recorded trades of less than one billion pounds, and in some sessions it reached about 500 million pounds, while trading volumes have now risen to strong levels, and in one session it recorded about 20 billion pounds. The attractiveness of the international market is not related to trading volumes alone, as Abdel Hadi pointed out that the flexibility of the exchange rate and the ease of entry and exit of foreign investments represent two important factors in the decisions of international investors. He explained that the presence of a flexible exchange rate contributed to facilitating money transfers and the exit of foreign investments from the market, and that Egypt’s continued classification among emerging markets enhances the opportunities for the flow of foreign investments and raises the confidence of individual investors and foreign institutions.

This comes at a time when the Egyptian market aims to expand the base of companies capable of attracting international investors, as the Stock Exchange points out the importance of increasing international visibility and transparency, in addition to developing the technological structure, trading and disclosure mechanisms, and financial products and services. Abdel Hadi said in special statements to the Ufoq News Network in Arabic that the next stage requires continuing to develop the infrastructure and trading mechanisms, including activating mechanisms such as short selling, in addition to strengthening the bond and sukuk market and increasing the number of companies listed on the stock exchange, as well as activating the government offering program, which contributes to increasing the number of strong listed companies and enhancing the competitiveness of the stock exchange, and reduces the possibility of the market being exposed again to the risk of falling out of the emerging markets classification.

Regarding the impact of the decision on stock market indices, he explained that the benefit will be greater for the main index EGX30 compared to the indices EGX70 and EGX100, due to the concentration of a larger portion of investments in major companies with strong fundamentals. He pointed out that companies such as the Commercial International Bank, Talaat Mustafa Group, EFG Hermes, and Eastern Tobacco Company may benefit from the increased interest of foreign institutions, especially companies that have a listing on the London Stock Exchange, adding that the increase in liquidity in major stocks could be reflected in the rest of the market as investors move to small and medium-sized stocks.

While Abdel Hadi focuses on the impact of the decision on investor confidence and liquidity, Mohamed Maher, a member of the Board of Directors of the Egyptian Securities Association, believes that the importance of the step is also related to the nature of investors who follow FTSE Russell indicators and use them to build their investment decisions. Maher said in exclusive statements to the Ofek News Network in Arabic that Egypt’s exit from FTSE Russell’s watch list and its retention of the emerging markets classification represents a positive indicator for the Egyptian market, noting that there are international investors and investment funds that follow FTSE Russell indices and base their investment decisions on the stocks and markets listed in them.

He explained that this development may contribute to increasing foreign investment flows to the Egyptian Stock Exchange, as a result of the interest of funds and investors who follow FTSE Russell indices in the Egyptian market. Maher added that Egypt's continued classification as a secondary emerging market may support foreign investor inflows, especially since Egyptian stock prices are relatively low compared to surrounding markets and a number of other emerging markets. He pointed out that increasing foreign investors' interest in the Egyptian market may lead to improved demand for stocks, which may positively affect the performance of stock market indices during the coming period.