KEY THEMES
As we expected yesterday, MSCI did not make any changes (i.e. additions or deletions) to Egypt’s stocks in its MSCI Emerging Markets (EM) index. Furthermore, the index company did not make any changes to small-cap or mid-cap indices. We realize that some investors often wait for the announcements made by MSCI or other index providers to play the momentum game: buy the potential additions and sell the potential deletions. We tend to be contrarian when it comes to the game of indices rebalancing; we might prefer to buy the potential deletions and sell the potential additions. We argue that such a hype over indices rebalancing create short-term imbalances and result in mispricing of certain stocks. For instance, some market participants were betting that Fawry [FWRY] will make it to at least MSCI Small-Cap index, which it did not. FWRY is up 42% already ytd, closing yesterday at EGP47.62/share vs. Bloomberg consensus of EGP33.9/share (a 29% downside potential, unless of course analysts start chasing the stock price higher! As for investors, buying the stock that will only move higher because of its inclusion in an index leaves their performance up to the whims of that index provider, becoming an all-out passive investor. But for active investors, we refer them to our 20 long ideas and now-seven short ideas after removing Raya Holding [RAYA].
Positive
20 Long Ideas: CIEB, COMI, AUTO, CIRA, MTIE, ORWE, OLFI, EKHO, ISPH, ORAS, SWDY, ABUK, MFPC, MICH, BINV, CICH, HRHO, ELSH, EMFD, and ETEL.
Negative
7 Short Ideas: ACGC, KABO, AFDI, ALCN, PRCL, UNIP, and FWRY.