The Role of Institutional Investors in the Egyptian Capital Market

Abstract

The role of institutional investors in capital markets of the Middle East and North Africa region has not been explored, in large part due to the fact that most markets continue to be retail-based, despite the fact that stock exchanges and securities regulators have sought to attract domestic and foreign institutional capital. It is also a result of the fact that institutional investors remain largely passive as judged by the level and quality of their engagement with investee companies.This paper aims to identify the role and the influence of institutional investors on corporate governance and company performance in the Egyptian market, taking a historical perspective and seeking to pinpoint the role of state and private institutional investors in the Egyptian Exchange. To do so, it categorises institutional investors’ strategies in order to highlight the extent of their engagement with the investee companies, in particular the largest listed firms (EGX 30 companies).The paper highlights the role of policymakers in improving the functioning of the capital market and demonstrates that institutional investors’ engagement has not been as significant as expected. We conclude with a number of practical recommendations to policy makers to encourage local institutional investors to play a more active role in the market, based on the international experience but at the same time rooted in the history and recent developments in the Egyptian capital market.