Possible upgrade: Pakistan stocks reclassification process getting under way
MSCI to announce in June whether Pakistan will enter its Emerging Markets Index
PHOTO: AFP
KARACHI:
MSCI said on Thursday it is going to start discussions with market participants on the possible reclassification of Pakistani stocks in its benchmark Emerging Markets (EM) Index.
MSCI is a leading provider of international investment decision support tools. Global institutional investors use different MSCI indices - such as frontier, emerging, China and US markets - to create balanced portfolios to generate maximum returns while keeping in view their overall risk appetite.
MSCI will announce its final decision in June after getting feedback from international fund managers and stock traders on whether Pakistan should be classified in the EM Index. The actual reclassification of the index will follow next year.
However, global investors tend to start factoring in the reclassification ahead of the actual change, which prompts massive inflows of global funds in the case of a favourable decision.
Local investors reacted positively to the MSCI statement, as the benchmark KSE 100-share index gained 216 points on Thursday. “Today’s (Thursday) outperformance could be attributed to the announcement by MSCI,” said Intermarket Securities in a post-trading hours note to clients.
Pakistan was part of the MSCI EM Index between 1994 and 2008. However, the temporary closure of the Pakistan Stock Exchange in 2008 led MSCI to remove it from the index and classify it as a “standalone country index”.
MSCI made Pakistan part of the Frontier Markets (FM) Index in May 2009 and it has remained as such since then.
According to Taurus Securities Head of Research Zeeshan Afzal, Pakistan had met most of the accessibility criteria for the MSCI EM Index by June 2015, except the stability of institutional framework and unavailability of stock lending and short-selling.
Pakistan is expected to receive an inflow of up to $500 million in foreign portfolio investment should MSCI reclassify it as an emerging market in its upcoming annual review, according to Next Capital CEO Najam Ali.
Assets of more than $9.5 trillion are estimated to be benchmarked to MSCI indices worldwide.
Pakistan’s current weight in the MSCI FM Index is 8.51%. Its weight in the MSCI EM Index will be smaller in percentage terms though. But the reclassification will bring in bigger foreign inflows in absolute terms, as emerging markets attract far more funds than frontier markets.
According to Ali, Pakistan’s weight in the MSCI EM Index will be approximately 0.17%. “Most frontier market funds will continue their investment in Pakistan as long as the improving macro theme is intact,” he said, adding emerging market funds will also start investing in Pakistan post-reclassification.
Published in The Express Tribune, April 1st, 2016.
MSCI said on Thursday it is going to start discussions with market participants on the possible reclassification of Pakistani stocks in its benchmark Emerging Markets (EM) Index.
MSCI is a leading provider of international investment decision support tools. Global institutional investors use different MSCI indices - such as frontier, emerging, China and US markets - to create balanced portfolios to generate maximum returns while keeping in view their overall risk appetite.
MSCI will announce its final decision in June after getting feedback from international fund managers and stock traders on whether Pakistan should be classified in the EM Index. The actual reclassification of the index will follow next year.
However, global investors tend to start factoring in the reclassification ahead of the actual change, which prompts massive inflows of global funds in the case of a favourable decision.
Local investors reacted positively to the MSCI statement, as the benchmark KSE 100-share index gained 216 points on Thursday. “Today’s (Thursday) outperformance could be attributed to the announcement by MSCI,” said Intermarket Securities in a post-trading hours note to clients.
Pakistan was part of the MSCI EM Index between 1994 and 2008. However, the temporary closure of the Pakistan Stock Exchange in 2008 led MSCI to remove it from the index and classify it as a “standalone country index”.
MSCI made Pakistan part of the Frontier Markets (FM) Index in May 2009 and it has remained as such since then.
According to Taurus Securities Head of Research Zeeshan Afzal, Pakistan had met most of the accessibility criteria for the MSCI EM Index by June 2015, except the stability of institutional framework and unavailability of stock lending and short-selling.
Pakistan is expected to receive an inflow of up to $500 million in foreign portfolio investment should MSCI reclassify it as an emerging market in its upcoming annual review, according to Next Capital CEO Najam Ali.
Assets of more than $9.5 trillion are estimated to be benchmarked to MSCI indices worldwide.
Pakistan’s current weight in the MSCI FM Index is 8.51%. Its weight in the MSCI EM Index will be smaller in percentage terms though. But the reclassification will bring in bigger foreign inflows in absolute terms, as emerging markets attract far more funds than frontier markets.
According to Ali, Pakistan’s weight in the MSCI EM Index will be approximately 0.17%. “Most frontier market funds will continue their investment in Pakistan as long as the improving macro theme is intact,” he said, adding emerging market funds will also start investing in Pakistan post-reclassification.
Published in The Express Tribune, April 1st, 2016.