Ibrahim Jamal writes on the hour of decision October 6: Three stocks keep Egypt in FTSE Russell... and where is foreign money going?

The headline was ready in the week ending September 24: foreigners bought T-bills with a net value of EGP 54.9 billion, compared to only EGP 993.2 million in equities, which is nearly 55 times as much. However, the Egyptian Exchange's monthly report for September tells another story. Over the month, foreigners were net sellers of T-bills worth around EGP 43 billion ($826.2 million) and net buyers of equities worth EGP 350.9 million, while Arabs were the largest net buyers of debt with EGP 79.5 billion.

Weekly figures may include transactions excluded from the monthly bulletin, so it is not accurate to directly place one above the other. What is certain is that a single week does not make a trend. Having followed this market for 23 years, what I have learned is that short-term foreign money changes its destination faster than headlines do.

What settles the debate on October 6

FTSE announces the results of its annual review after the close of the US market on Tuesday, October 6, and Egypt is the only market on the watch list for a potential downgrade from emerging to frontier market status.

The story has a recent precedent. In September 2023, Egypt was placed on a watch list for a potential reclassification to unclassified status due to major delays in foreign capital repatriation. It subsequently exited the list, only to return to a new watch list on October 7, 2025 because the number of eligible securities fell below the minimum requirement of two stocks in the emerging market index.

Who tipped the scales for the Egyptian Exchange?

Commercial International Bank (CIB) was the sole constituent. Then Talaat Moustafa Group joined with a market capitalization of $3.46 billion at the end of 2025, followed by Telecom Egypt with around $3.9 billion effective September 21. The July notice confirmed that Egypt met both the market capitalization and the number of securities requirements.

Analysts speaking prior to the decision lean toward Egypt exiting the watch list. Ahmed Defrawy from EFG Hermes expected FTSE to remove Egypt from the list without negative selling pressure, while Ahmed Hafez from Beltone views the real question as being an exit from the list. However, the safety margin is narrow: three constituents against a minimum of two, and each stock's eligibility changes with its price, liquidity, and free float ratio, with every market decline reducing its market capitalization in USD before the next test.

What did the figures say about the Egyptian Exchange during September?

EGX30 lost 5.42% in September compared to August's close, while EGX70 for small and medium enterprises lost 10.84%. From the September 9 peak at 56,500 points to the September 30 close at 51,894.83, the loss was 8.15%. Market capitalization fell from EGP 4.418 trillion on September 3 to EGP 4.056 trillion. In the September 27 session alone, 190 out of 221 traded stocks declined, or 86%.

A nine-session losing streak ended on October 1 with a 2.24% gain to 53,055.03 points, as the market gained EGP 128.9 billion to reach EGP 4.185 trillion. The rebound was led by Egyptians, who were net buyers of EGP 318.5 million, while foreigners were net sellers of EGP 225.6 million. The index still retains annual gains exceeding 20%, which partly explains the profit-taking.

Where did foreign money actually go?

Trading value in September reached EGP 2.49 trillion, with 88.76% directed to bonds and T-bills, and 11.24% to equities. In equities, Egyptians accounted for 88.2% of transactions, foreigners for 7.7%, and Arabs for 4.1%, excluding deals. Foreigners recorded net purchases of EGP 350.9 million and Arabs EGP 3.22 billion, but foreigners remain net sellers of EGP 11.21 billion year-to-date. These figures do not support the narrative of foreign capital flight from equities in September alone, nor do they support the story of their massive return to them.

Debt is more volatile. Foreign institutions were net sellers of T-bills and bonds worth EGP 45.8 billion in the week prior to September 18, then net buyers of EGP 54.9 billion in the week ending September 24, before returning to net sales of EGP 18.9 billion ($361.2 million) in the final week. This is nothing new. The IMF estimated that non-resident holdings of local debt fell from $39.1 billion in February to $22.2 billion in early April, before inflows resumed.

Why do T-bills remain a strong competitor to equities?

The average accepted yield on 91-day T-bills reached around 24.62% in the September 20 auction, while urban inflation recorded 14.5% in August. The nominal spread is about 10.1 percentage points, and the real yield calculating the relative difference is around 8.85%. This is subject to shrink, as the IMF expects average inflation to reach 16.7% in the second half of 2026, while the Central Bank lowered its projections. The divergence between the two estimates warrants watching.

However, foreign investors calculate in dollars. The yield on a 91-day T-bill is equivalent to around 6.14% over its tenor. At around EGP 52 to the dollar, it takes the dollar nearing EGP 55 upon exit for the entire yield to evaporate—a level the pound touched in the spring. This is before taxes and transfer costs, making it a buffer rather than a guarantee.

The Central Bank kept interest rates unchanged for the fifth time at 19% for deposits and 20% for lending, with its next meeting set for October 29. The Federal Reserve raised rates by 25 basis points on September 16 to 3.75% - 4.00%, which could increase the yield demanded by some investors to hold emerging assets.

How does foreign capital enter government debt?

The Central Bank issues T-bills on behalf of the Ministry of Finance in auctions for tenors of 91, 182, 273, and 364 days, and foreigners also trade in the secondary market, which is captured by exchange reports. A foreign institution converts dollars to pounds, buys the T-bill, earns its yield, and then needs dollars upon exit. Thus, its real return is the yield minus the pound's depreciation. Every inflow into T-bills increases FX supply and supports the pound, but it is fast-moving money, unlike exports, tourism, and direct investment.

The exchange rate, then, is the weakest link. The pound lost up to 17% during capital outflow periods before recovering with the return of inflows, and international reserves reached 119% of the IMF's adequacy metric by the end of June. This provides good absorption for a single shock, but does not guarantee absorbing a second one.

Geopolitics

Navigation in the Strait of Hormuz collapsed since the start of the war in late February, and Brent closed near $106.60 on September 24. Negotiations are underway for a phased agreement in which Egypt participates as a mediator, and on October 1 Iran stated it received the US response to its proposal. Egypt imports a large portion of its energy needs, and the Central Bank itself considered fuel prices, food costs, and prolonged energy shocks as risks for inflation pass-through. The IMF sees renewed regional tensions as the single largest threat to the outlook.

Nevertheless, it is inappropriate to hold geopolitics solely responsible for the correction. The decline began after the September 9 peak, coincided with foreign debt sales on September 14 and the Fed rate hike two days later, and followed a major annual rally that made profit-taking an additional factor.

Four Scenarios and Their Impact on EGX30

Scenario 1, Egypt exiting the list. The overhang of uncertainty disappears without negative sales pressure, and relief is likely to show in the three stocks linked to FTSE indices and in blue-chips generally. However, it does not single-handedly restore liquidity, as T-bill yields near 25% remain the competitor.

Scenario 2, remaining on the list. The market avoids a downgrade but remains without a final bill of health, making the next review a source of anxiety given the narrow safety margin. In this case, I expect volatile trading concentrated in the most liquid stocks.

Scenario 3, a downgrade with a grace period. FTSE announced Pakistan's downgrade on July 3, 2024, effective September 23 of the same year, roughly 12 weeks later. It announced Vietnam's upgrade in October 2025, effective September 21, 2026, about 11 and a half months later. Thus, the grace period is not fixed. Pakistan's experience helps gauge the impact: the head of a local brokerage said the decision was anticipated and did not affect the market, with the index rising to a record high the following day. Vanguard's FTSE-linked fund sold about half its position—$82.5 million out of $165 million—by September 2024. An anticipated decision may pass with limited impact, but Egypt is not Pakistan; its liquidity and investor base are different.

Scenario 4, a downgrade with swift implementation. In Nigeria in 2023, the deletion came quickly amid a severe dollar shortage. Egypt's circumstances today are different, but if this were to happen, pressure would concentrate on the three stocks within days, bid-ask spreads would widen, and liquidity would drop. Since all three carry significant weight in EGX30, the impact would show in the main index.

As for the volume of funds involved, it remains unknown. S&P DJI estimated Egypt's weight at 0.12% in its emerging index and around 3.4% in the frontier index if downgraded, and closed its consultation on August 20 without a downgrade. These figures cannot be projected onto FTSE, which has not published a similar estimate. However, they explain the paradox: emerging funds sell a tiny weight, while frontier funds buy a larger weight within a smaller index, and the net outcome depends on the volume of assets tracking each index.

Three stocks at the heart of the decision

The stocks relevant to the emerging index are Commercial International Bank, Talaat Moustafa Group, and Telecom Egypt, with the latter weighing 6.96% in EGX30 according to updated exchange data on September 10. The decision does not alter the composition of EGX30 as calculated by the exchange, but flows linked to rebalancing will initially concentrate in these stocks. The other 27 constituents are not directly impacted, though they remain vulnerable to liquidity and sentiment spillovers.

In the event of a downgrade, the weight of each of the three stocks becomes larger in a smaller frontier index. The question that no published figures answer is whether local liquidity is sufficient to absorb sales without price spikes. Egyptians account for 88.2% of equity trading, which gives local liquidity a major role, but does not provide a definitive answer.

What is worth watching after October 6

Read the text of the FTSE notice before the headline: does it mention the watch list, when is the next test date, and does it set an implementation schedule? Compare net foreign buying in equities with their net position in T-bills; a rise in EGX30 while foreign money remains in debt does not necessarily mean foreign liquidity has returned to equities. Watch the spread between EGX30 and EGX70, the Central Bank meeting on October 29, and the exchange rate, as dollar returns on T-bills erode accordingly.

Where is foreign money going?

The numbers so far do not prove a sustained shift from equities to T-bills. Money moves between the two at a speed that makes reading a single week misleading. FTSE's decision determines Egypt's place on the index map, and even if Egypt exits the list, debt money will not automatically return to equities. The destination of foreign money is determined by comparing T-bill yields against expected equity returns, weighed against market, exchange rate, and liquidity risks.