EFG Hermes expects $1.1bn investment flows into regional equities after MSCI index review

MSCI will complete its 2022 semi-annual review in November that will result in several regional equities included in its indexes

EFG Hermes expects two Tadawul-listed companies to be added to the standard index. AFP

Regional equities are likely to receive a $1.1 billion boost in investment inflows with global index provider MSCI’s review in the fourth quarter of this year, EFG Hermes has reported.

MSCI will complete its 2022 semi-annual index review on November 10 that will result in several regional equities being included in its indexes, said EFG Hermes, Egypt's biggest investment bank.

“Liquidity will be tested at the end of September,” said Ahmed Difrawy, director and head of Data and Index at the bank.

“The price cut-off period will be any of the last 10 business days of October, starting from October 18.”

In August, MSCI said that changes announced in November will become effective on December 1.

MSCI gauges are tracked globally by major market players and funds. Any addition of a particular stock to indexes results in flows from investors with trillions of dollars under management, boosting liquidity and, potentially, its value.

In Saudi Arabia — the Arab world’s biggest economy and home to the largest Arab bourse, Tadawul — EFG Hermes expects two additions to the standard index: Nahdi and Arabian Internet and Communications.

“We think the following four names have a chance to be added to the small cap index: Al Dawaa Medical Services, Retal Urban Development, Al Masane Al Kobra Mining and Alamar Foods,” Mr Difrawy said.

“We see one name, Saudi Company for Hardware, at risk of being deleted from the small cap index.”

In the UAE, the Egyptian investment bank expects “three price-dependent candidates for inclusion” in the country’s standard index.

Abu Dhabi-listed Multiply currently barely meets the minimum estimated free float market capitalisation (FFMC) threshold, and any rally and subsequent holding on to its gains before the price cut-off period would generate $170 million in investment flows, EFG Hermes said.

Q Holding currently does not meet the minimum FFMC, but if the stock rallies 18 per cent before the price cut-off, the stock could see $195m of investment inflows.

In the case of Abu Dhabi-based IHC, “a 10 per cent price rally, even when using a 2 per cent free float, would make it eligible for inclusion and see $277m of inflows”, the bank said.

For Emaar Properties, the biggest-listed UAE developer, EFG Hermes has laid out several scenarios in terms of its foreign ownership limits that will decide if the stock will see potential inflows or outflows.

In terms of the UAE small cap index, the bank expects the addition of Sharjah Islamic Bank and Al Seer Marine Supplies, while it expects Dubai-based Shuaa Capital to exit, unless the stock rallies a minimum of 15 per cent before price cut-off period.

In Qatar, EFG Hermes sees inflows mostly reflecting the recent foreign ownership limit changes in Qatar Fuel Company, Qatar International Islamic Bank, Doha Bank and Medicare Group. There could be one possible small cap addition of Investment Holding Group.

In Kuwait, meanwhile, EFG Hermes expects two small cap additions — Salhia Real Estate and Ali Alghanim Sons Automotive.

But in Egypt, it sees Juhayna Food Industries and Cairo Investment and Real Estate as being eliminated from the small cap index, as “they will most probably miss the liquidity screening by the end of September”.

“Cleopatra Hospital is also at risk of being deleted from the small cap index, unless the stock rallies a minimum of 10 per cent before the price cut-off period,” the bank said.