Keyword

EGX 30 Index, Exchange Rate Volatility, Foreign Portfolio Investment (FPI), Interest Rates.

Abstract

Purpose of the research: The study aims to examine the relationship between Foreign Portfolio Investment (FPI) flows and the stock market in Egypt from FY2004/05 to FY2023/24, focusing on the EGX 30 Index. Given Egypt's evolving economic landscape, understanding this relationship is crucial for policymakers, investors, and financial institutions seeking to manage market risks. By analyzing quarterly FPI & EGX30 data from the Central Bank of Egypt & Egyptian Exchange, the research aims to identify patterns, causality, and policy implications. The findings will contribute to academic discourse on emerging markets and enhance understanding of strategies for stabilizing Egypt’s financial market amid global economic uncertainties.

Methodology: The research deploys an ARDL model to capture short and long-term effects of FPI, interest rates, and exchange rates on the EGX30 Index.

Results: In the short run, the EGX30 Index shows a strong and statistically significant relationship with its past values, indicating market momentum. Foreign portfolio investment has a positive but statistically insignificant effect on the stock market. Interest rates exhibit a positive and marginally significant impact, suggesting some influence on investor behavior. The exchange rate has a negative but statistically insignificant effect in the short term.

In the long run, foreign portfolio investment continues to show a positive yet statistically insignificant effect, reflecting volatility and external risk factors. Interest rates demonstrate a strong positive and marginally significant relationship with the stock market, while the exchange rate shows a strong, positive, and statistically significant long-term impact, highlighting the influence of currency depreciation on export-driven stocks.

Conclusion: Exchange rate depreciation had a strong positive impact, especially after the 2016 floatation and recent 2022–2024 devaluations, as it boosted export-driven stocks on the EGX.  Foreign portfolio investment was unstable and statistically insignificant, reflecting Egypt’s recent FPI volatility and the challenges of political and currency risks.


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