Last Thursday, the market witnessed one of those "once in a blue moon" days where traded values crossed—not just the EGP2bn mark—but almost the EGP4bn mark! It was a reminder of one of those heydays when the market was flush with liquidity and optimism. Thursday was the day before the MSCI Emerging Markets index rebalancing was to take place (at the close of 27 May). Remember that earlier mid-May, MSCI had made its semi-annual index review (SAIR), where it decided to replace Elsewedy Electric [SWDY] with Fawry [FWRY], joining CIB [COMI] and Eastern Company [EAST] to represent Egypt in the widely-tracked index. Ideally, what this should have meant was high outflows from SWDY and smaller outflows from COMI and EAST—all going into FWRY which now has a higher free float market cap. Both Arab and non-Arab foreign institutional investors were net sellers with EGP539mn and EGP301mn, respectively, whereas Egyptian investors were net buyers with EGP794mn.
Nonetheless, what we saw last Thursday was unexpected, where:
- COMI fell higher than expected (-3.5%, turnover of EGP1.28bn).
- FWRY rose on a VWAP basis (+2.1%) but was down on a last price basis (-0.8%) with a turnover of EGP0.82bn.
- SWDY ended the day lower (-4.2%, T/O of EGP0.64bn).
- EAST was marginally higher (+1.4%, EGP0.05bn).
The fact that COMI (which is still part of MSCI EM index) fell this much, similar to SWDY (which is being removed from the index), suggests that Egypt’s weight in MSCI EM was probably even reduced further. Still, we prefer to use such volatility which result in mispricing as opportunities to jump in at low valuation levels.
POSITIVE
COMI, SWDY: Both stocks have fallen in the past few days without any fundamental justification. We believe it was an overreaction to MSCI EM rebalancing.