Egyptian stock market to launch new criteria to attract investors to EGX 30

New criteria for inclusion in Egypt’s most important stock index, EGX 30, are rolling out next month, Egyptian stock exchange (EGX) chairman Mohamed Farid said in a statement on Monday.

The changes aim to make the EGX 30 more attractive to foreign investors by giving more weight to stocks with large market capitalizations that are more attractive to institutional investors.

The changes would give less prominence to heavily-traded small cap “momentum” plays favoured by retail investors..

How it currently works: The EGX 30 basically reflects the index’s 30 most-traded companies, with a few caveats: Constituents, as they’re known, must also have a minimum 15 percent freefloat, be traded on at least 65 percent of trading days during the rebalancing period, and can’t have 30 percent or more shares in cross-holdings.

How it’s going to work starting in February: To qualify for inclusion, a company will need to have a freefloat market cap (which is simply the number of shares in freefloat multiplied by the share price at any given moment) equal to or above the median average of the 60 most actively-traded companies.

The idea is to ensure that the EGX30 simultaneously reflects the largest and most actively traded companies on the bourse. Requirements on freefloat and active trading days remain in effect under the new system.

Companies ranked #1-27 are included automatically, while the EGX has some flexibility to choose the last three companies from among those ranked #28-33. The idea is that the automatic inclusion of the top 27 companies will see fewer changes to the index every time it is reviewed.

The EGX 30 is reviewed (or “rebalanced”) every six months, at the beginning of February and of August each year. This means that the changes will be felt next month when companies are kicked off and added to the index.