MSCI index: Pakistan makes strong case for MSCI upgrade, says FT

Decision due on Jun 14, to attract fresh inflows if exchange gets ‘emerging market’ status

ISLAMABAD: Pakistan is closing in on the Morgan Stanley Capital International (MSCI) upgrade with a promotion to the ‘emerging markets’ (EM) index looming around the corner.

The likely development comes on the back of the country’s performance in many aspects and indicators that have fared reasonably well in recent years, reported Financial Times London.

“Terrorism-related deaths have fallen 74% from their 2010 peak, economic growth has accelerated to a solid 4.5%, inflation has fallen sharply to around 3.3% while the fiscal deficit has narrowed markedly to around 4.1% of the Gross Domestic Product (GDP),” said the FT report, contributed by Steve Johnson.

Quoting the Renaissance Capital (an emerging market-focused investment bank) Global Chief Economist Charles Robertson, the report said that on a per capita basis the likelihood of being killed by a gun in the US was now higher than that of dying as a result of terrorism in Pakistan.

The index provider is due to rule on whether the country has done enough to be promoted to EM status on June 14.

“Pakistan has a weight of 8.8% in the MSCI Frontier index, making it the fourth largest country after Kuwait, Argentina and Nigeria; but it is only likely to account for around 0.19% of the ‘admittedly much more widely followed MSCI EM index’ if promoted.”

Experts, however, believe that an upgraded Pakistan would attract new inflows from foreign funds even though it would have the second-lowest weighting in the 24-nation MSCIEM index, above only Czech Republic.

“Frontier funds are quite index-agnostic and I believe would be in no hurry at all to sell,” said Renaissance Capital Head of Emerging Market Equity Strategy Daniel Salter.

“They are often able to hold off-index countries such as Saudi Arabia, UAE, Qatar and Egypt.”

When it comes to attracting fresh cash from the actively-managed EM funds, which of course would not need to buy even in the event of Pakistan’s promotion, Salter believes their nose for a bargain will play a role.

Published in The Express Tribune, May 29^th, 2016.

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