KARACHI: The Morgan Stanley Capital International (MSCI) has added Pakistan in MSCI FM 100 and MSCI FM 15% country cap index, which could bring around $85 million inflows to the local stock market.

Wajid Rizvi at JS Global Capital said that Pakistan would become a part of these indices in the upcoming MSCI Semi-Annual Index Review (SAIR) in May 2022.

“We expect a total of $86 million worth of foreign inflows, which can likely rejoice investors’ sentiment.”

“We expect that this action will bring additional foreign passive flows of $30 million to the KSE-100 Index, besides the active flows of $56 million.”

Albeit low, compared with $0.8 billion during the previous MSCI FM reclassification, will put foreign flows in the black for Pakistan; thereby, changing the negative sentiment of foreign outflows, which has mostly dragged the index performance in the past.

Tahir Abbas at Arif Habib Limited said that the MSCI had not announced Pakistan constituents for FM 100 index, “However, as per our workings, a total of 11 constituents from Pakistan are expected to be added to the MSCI FM 100 Index,”

“These companies include Lucky Cement, Hub Power Company, Engro, Habib Bank Limited, United Bank Limited, MCB Bank Limited, Fauji Fertilizer Company, Systems Limited, Mari Petroleum, Engro Fertilizer and Pakistan Petroleum Limited with a cumulative weight of 3.64 per cent in the index.”

The highest weighted constituent will be Lucky Cement (weightage of 0.46 per cent), while the lowest weighted company will be PPL (weight: 0.22 per cent).

The weight of Pakistan in MSCI FM Index reduced from 2.3 per cent in June 2021 at the time of reclassification proposal to 1.25 per cent in November 2021, when the MSCI reclassification was notified.

This is primarily owing to the bearish trend that existed between the proposal and decision. Similarly, the MSCI FM 15% Country Capped Index weight for Pakistan that was simulated at 2.79 per cent in May 2021 is expected to decline to 1.65 per cent upon the inclusion in May 2022.

Whereas, the 5.78 per cent simulated weight of the MSCI FM 100 Index is expected to decline to 4.26 per cent upon inclusion.

Pakistan continues to trade at unwarranted multiple 5.3x its earnings, 55 per cent discount to the average of other markets in the investible universe of Frontier Market funds.

The country has never traded near to 5x its earnings for a considerably long time and this effectively puts the KSE-100 in one of the most lucrative spot, especially compared with the region.

“We reckon frontier focused foreign investors could wake them from slumber and rekindle interest in blue chips,” Wajid Rizvi said.