MSCI proposes Pakistan’s reclassification to Frontier Markets

Javed MirzaWeb Editor

25th Jun, 2021. 02:37 pm
msci pakistan

KARACHI: In a recent development, Morgan Stanley Capital International (MSCI) has proposed to reclassify Pakistan into MSCI Frontier Markets from MSCI Emerging Markets, a statement said on Friday.

“MSCI has been artificially maintaining Pakistan’s stature in [the] Emerging Markets since the country has been no longer meeting EM standards for size and liquidity criteria for [the] last 19 months,” it added.

Thus, it is now proposed to put Pakistan back to the Frontier Markets with a higher weight of 2.3 per cent from the existing meager country weight of 0.02 per cent in the Emerging Markets.

Moreover, Pakistan’s weight in the widely tracked Frontier Market 100 Index will now be 5.8 per cent, whereas the Oil and Gas Development Company (OGDC) has been included in the MSCI Pakistan standard Index.

An analyst at JS Global Capital said currently, the weight of the MSCI Pakistan Index in the MSCI Emerging Markets Index stands at 0.02 per cent. “If the reclassification takes place, the weight of MSCI Pakistan Index in the MSCI Frontier Markets Index is expected to be 2.3 per cent, whereas Pakistani securities would have a simulated weight of 5.8 per cent in the MSCI Frontier Markets 100 Index.

Although the country’s classification has been downgraded one notch from the Emerging to Frontier Markets, this boded well for the local stock market, as Pakistan will enjoy higher weightage in the Frontier Markets, compared with the negligible weight in the Emerging Markets, which may result in the net inflows in the Pakistani market.
“We expect lower outflows from [the] funds tracking Emerging Markets since already foreigners had been net sellers of $1.3 billion ever since Pakistan was included in EM four years back (KSE-100 index down 5 per cent since then),” an analyst at Sherman Securities said.

As per the MSCI, the discussion on classifying the MSCI Pakistan Index from the Emerging Markets to Frontier Markets will continue till August 2021, while the final announcement will be made by September 7, 2021. Interestingly, Pakistan market is now available at 35 per cent to 40 per cent discount to the fund managers tracking Frontier Markets, as Pakistan market was trading close to 9x on forward PE at the time when the country was reclassified from the Frontier Markets to Emerging Markets.

 

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