MSCI Annual Review 2011: Pakistan’s index going nowhere

MSCI terms capital market ‘similar to last year’.

KARACHI:

MSCI has decided not to include Pakistan in the list of potential reclassification back to MSCI Emerging Marketing Index, according to the annual review.

Pakistan, after remaining part of the MSCI Emerging Market Index for 14 years from 1994 till 2008, was classified down a level to the Frontier Market Index after the infamous price floor rule imposed following the benchmark index crashing 42 per cent within a couple of months in 2008.

MSCI, a leading provider of investment decision tools worldwide, is widely used by top global fund managers to track a stock exchange’s position and make fund allocations accordingly.

In the annual market review 2011, MSCI did not see any development in the Pakistani equity market and termed it ‘similar to the situation last year’.

One of the key reasons for not considering Pakistan for an upgrade is the lack of investor interest in the market, said KASB Securities analyst Imtiaz Gadar. “The market continued to be characterised by a very limited number of sizable securities,” said the MSCI statement.

Only three companies in the local market meet the MSCI Emerging Markets minimum size requirements, adds the statement.

Oil and Gas Development Company, MCB Bank and Fauji Fertiliser Company are the only companies that meet the size criteria, according to KASB Securities.

Pakistan is sixth in the index weight-age wise and is the highest weighted South Asian country in the index that includes Sri Lanka and Bangladesh. Neighbour India comes in the MSCI Emerging Markets Index which is one level above the Frontier Markets Indices.

Every June, MSCI communicates after discussion with investment community the list of countries under review and announces the new list of countries if there are any.

Furthermore, MSCI also announced the potential reclassification of the MSCI Qatar Index and the MSCI UAE Index from Frontier Market to Emerging Market status has been extended to December 2011.

From Pakistan’s vantage point, the upgrade of these two markets should lead a one per cent weight-age gain to five per cent in MSCI Frontier Market, said Gadar. In case a decision is taken to upgrade Qatar and UAE in December, the timeline for implementation will remain drawn out, with November 2012 cited as the earliest possible date for implementation, added Gadar.

In the previous announcement, Pakistan’s weight increased in the MSCI Frontier Index to four per cent as Trinidad and Tobago was ousted from the index.

Published in The Express Tribune, June 23^rd, 2011.