Reclassification of PSX

Buoyed by a possible reclassification as an emerging market, the Pakistan Stock Exchange’s (PSX) benchmark 100 Index is inching towards an all-time high. The bullish run, which has seen the index climb over four per cent during the last week, was slightly subdued on May 6 as investors opted for profit-taking in high-tier stocks. Nevertheless, the MSCI — an international firm that provides investment decision support — announcing its decision in June of reclassifying Pakistan as an emerging market will possibly help continue the massive inflows of foreign funds into the PSX. Foreign investors, which typically provide a useful cue for stock market performance, have been net buyers in recent sessions, serving as another indicator that Pakistan’s reclassification as an emerging market is not just likely, but is being factored into equations already.

Pakistan remained in the MSCI Emerging Market Index between 1994 and 2007, but was removed from it in December 2008. In May 2009, Pakistan was shifted from standalone to the frontier market index, and has since given phenomenal returns. Liquidity has seen massive improvement and market capitalisation has posted impressive growth. The profit of listed companies has also grown considerably, and there is enough evidence that Pakistan’s reclassification is likely. Additionally, while 2015 was a poor year for all investments with investors pulling out their money in fear of a global meltdown, the KSE-100 Index managed to hold its own, showing that local investors have the absorption power to keep stocks relatively steady. These indicators, along with the regulations that are now in place and the recent integration of all three stock exchanges, indicate that we will be witnessing a buoyant market and the expected reclassification soon. It would be highly surprising if the MSCI does not go ahead with the reclassification decision. That scenario could then see a massive retreat from investors. However, as things stand currently, that is unlikely to happen.

Published in The Express Tribune, May 9^th, 2016.

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