Morgan Stanley Capital International (MSCI), an investment research firm, recently released a report discussing the potential reclassification of its Egyptian indexes.

The report suggested that if the market accessibility in Egypt continues to deteriorate, MSCI may consider reclassifying the MSCI Egypt Indexes from its emerging market category to either frontier or standalone status.

The report also highlighted the impact of a shortage of foreign currency on foreign investors, “affecting foreign investors’ ability to repatriate capital in a timely manner.”

Dimitris Melas, the Global Head of Index Research and Product Development and Chairman of the MSCI Index Policy Committee, explained that the challenging global macroeconomic environment has resulted in limited foreign exchange liquidity across various markets.

MSCI classifies the markets it tracks into three primary groups - developed, emerging, and frontier. The categorization of markets aims to support investors in understanding and comparing different markets while evaluating associated investment risks.

Egypt is currently considered an emerging market, with its equities included in the MSCI Emerging Markets Index alongside countries like Saudi Arabia, Qatar, Turkey, and the UAE. On the other hand, Jordan, Morocco, and Tunisia are classified as frontier markets by MSCI, while standalone markets include newly eligible markets or those experiencing significant deterioration in market accessibility, such as Lebanon.

To address concerns related to index replication and minimize changes in associated indexes, MSCI introduced a special treatment for the MSCI Egypt Indexes in May 2023.

The report added that the MSCI 2024 Market Classification Review will apply new size cutoffs for Frontier Markets. This review will consider the size and liquidity requirements resulting from the May 2024 Index Review, reflecting MSCI's commitment to periodically reassess and adjust its classification criteria to align with evolving market dynamics.