MSCI downgrades Pakistani stock exchange from emerging to Pakistani
Global investment research firm Morgan Stanley Capital International (MSCI) has decided to demote Pakistan from emerging market (EM) to frontier market (FM).
MSCI, which provides, among other services, stock indexes to institutional investors and hedge funds, made the move after considering comments from market participants during a recent consultation on the index’s reclassification proposal. MSCI Pakistan.
Inclusion in the MSCI indices helps the stocks that make it up to attract investment from international investors, especially Americans, who wish to buy global stocks through exchange-traded funds (ETFs) and mutual funds that reflect these indices or use them as a benchmark for their own performance.
The decision will take effect in November 2021. Pakistani constituents of the MSCI EM index include Lucky Cement, Habib Bank Limited and Muslim Commercial Bank, while the MSCI FM index adds a fourth oil and gas development company.
“This development would improve Pakistan’s visibility as the weight in emerging markets was 0.02%,” KASB Securities said in a report – Pakistan’s weight in the MSCI FM index will be 1.9%.
Topline Securities also has an optimistic view of this development. “We believe that EM’s upgrading to FM may prove beneficial for Pakistan in terms of reducing overseas sales,” the Karachi-based brokerage said. Foreigners have sold shares worth $ 730 million (net) since December 31, 2019 and have already sold shares worth $ 159 million (net) this year, he added. . “We expect the selling pressure from foreign funds to persist until at least November-2021, and may subside after rebalancing,” he said, adding, “We estimate the investment of EM funds. liabilities in Pakistan to the tune of $ 125 million to $ 175 million, where around $ 75 to $ 100 million is likely invested in major emerging market equities, while $ 50 to $ 75 million is potentially parked in the equities of emerging markets. emerging small cap markets.
MSCI EM Index vs MSCI FM Index
Starting in November, Lucky Cement, HBL and MCB, currently in the Emerging Markets category, will move to the MSCI FM Index and OGDC will join this list. So what is the difference between these two indices? The MSCI EM Index measures the financial performance of companies in fast growing economies around the world and tracks mid and large cap stocks from 27 countries, dominated by Chinese, Taiwanese and South Korean companies. On the other hand, the MSCI FM index captures a representation of large and mid caps in 27 frontier market countries.
MSCI claims that the Pakistani stock market meets market accessibility requirements under the Emerging Markets Classification Framework, but no longer meets size and liquidity standards, Topline said.
MSCI also announced the launch of a consultation on the potential inclusion of the MSCI Pakistan Index in the MSCI Frontier Markets 100 Index and the MSCI Frontier Markets 15% Country Capped Index as part of the semi-annual review of the May 2022 index. The results of this consultation will be announced at the same time as the quarterly review of the February 2022 index.
According to the MSCI simulation, Pakistan is expected to have a weight of 1.9% in the MSCI FM index and around 5.5% in the MSCI FM 100 index, the brokerage said.