Egypt's FX woes morph into MSCI headache

While high-fives were being doled out in the United Arab Emirates and Qatar on Wednesday after MSCI Inc. bumped both up to emerging market status, stocks in Cairo slumped after the index compiler warned that Egypt might lose the same coveted status.

In its 2013 annual market classification review, MSCI noted that a lack of foreign currency in Egypt, where reserve levels have tumbled to $16 billion from $36 billion before the uprising two years ago, is making international institutional investors fret.

“MSCI may be forced to launch a public consultation with the investment community on a potential exclusion of the MSCI Egypt Index from the MSCI Emerging Markets Index were the situation on the Egyptian foreign exchange market to worsen and result in the inability of international investors to repatriate their funds,” it said.

The MSCI threat was enough to send Egypt’s EGX 30 Index into a tailspin. The gauge plunged 5.2% on Wednesday, taking its year-to-date losses to around 16%.

Ahmed Abu El Saad, managing director at Rasmala Egypt Asset Management, said he was part of a team that originally held discussions with MSCI about joining more than 10 years ago. The concerns raised by MSCI overnight are ones that can be resolved by Egyptian authorities, he said.