Confidence boost: MSCI includes two Pakistani companies in frontier index

Hub Power and Indus Motor added, Pakistan Tobacco removed.

KARACHI: MSCI, a leading provider of international investment decision support tools, announced on Wednesday the inclusion of two Pakistani companies into the MSCI Frontier Markets (FM) Index.

International institutional investors use different MSCI indices – such as frontier, emerging, China and US markets – to create balanced portfolios aimed at generating maximum returns while keeping in view their overall risk appetite.

MSCI added Hub Power Company and Indus Motor Company from Pakistan while removing Pakistan Tobacco from its MSCI FM Index in its latest Semi-Annual Index Review for MSCI Equity Indices.

However, the news failed to trigger a positive sentiment on the Karachi Stock Exchange (KSE), although the inclusion of two Pakistani companies should ideally bring more foreign portfolio investment and increased volumes to the country’s equity market.

In 2014, the Semi-Annual Index Review for MSCI Equity Indices had resulted in the addition of four Pakistani companies (and deletion of one) into the MSCI FM Index. Pakistan gained notably by the last year’s review, which reclassified Qatar and UAE from FM to Emerging Markets (EM). As a result, Pakistan’s weight in MSCI FM Index increased to 8.8% as of April 30, 2015 compared to 4.1% in May 2014.

According to Topline Securities, Pakistan’s weight in MSCI FM Index is expected to increase after these additions/deletion and a successful secondary offering in Habib Bank. It added that Pakistan will have as many as 16 companies – namely Engro Corporation, Fatima Fertilizers, Fauji Fertilizers, Habib Bank, Hubco, Indus Motor, K-Electric, Lucky Cement, MCB Bank, National Bank, OGDC, Pakistan Oilfields, Pakistan Petroleum, PSO, PTCL and United Bank – in the MSCI FM Index following the review.

Another investment decision support tool, MSCI FM Small Cap Index, added four Pakistani companies – Kohat Cement, Maple Leaf Cement, Pak Elektron and Pak Suzuki – in the latest Semi-Annual Index Review for MSCI Equity Indices.

Five Pakistani companies, namely Hubco, Indus Motor, DG Khan Cement, Murree Brewery and National Foods, have been deleted from the MSCI FM Small Cap Index. With the latest round of additions and deletions, Pakistan will have 22 companies in the MSCI Small Cap Index.

According to Topline Securities, MSCI is expected to announce the result of its 2015 Annual Market Classification Review on June 9. The beginning of any consultation process to upgrade Pakistan from the MSCI Frontier Markets to the MSCI Emerging Markets may be initiated in the classification review, it said.

“The consultation process, however, takes a minimum of six to 12 months before the actual decision is taken to upgrade any country,” it stated.

Published in The Express Tribune, May 14^th,  2015.

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