In a surprise, Engro removed from MSCI’s EM Index

Pakistan’s weightage in the index is likely to drop to 0.08% from 0.14%

KARACHI: Morgan Stanley Capital International (MSCI) has surprisingly removed Engro Corporation from its Emerging Markets Index which foreign investors track to take investment decisions with fund size estimated at $1.4-4.7 trillion.

The change will come into effect on November 30 this year.

With this revision, the number of Pakistan-based companies in the MSCI Emerging Markets Index fell to five from six. Others are Lucky Cement, MCB Bank, Habib Bank Limited, Oil and Gas Development Company and United Bank Limited.



Prior to the announcement of MSCI’s biannual review late on Monday, there was talk in the Pakistan Stock Exchange (PSX) that Lucky Cement may be removed from the global index but it did not happen, analysts said.

Following Engro Corporation’s removal, its stock price hit the 5% lower limit, or dropped Rs14.37, to Rs273.17 with volumes of 661,100 shares at the PSX on Tuesday - the first trading day after the MSCI decision.

Lucky Cement’s share price inched up 0.30%, or Rs1.54, to Rs516.05 with volumes of 311,400 shares.

Analysts had also talked about possible inclusion of Pakistan Petroleum Limited (PPL) in the global index as the oil exploration company’s fundamentals had improved notably.

PPL’s stock price dropped 1.29%, or Rs2.54, to Rs193.71 with volumes of 993,200 shares at the PSX.

“We believe that the exclusion of Engro Corporation is due to upward revision in the MSCI’s market capitalisation criteria because of better performance of ex-Pakistan emerging markets,” Sherman Securities commented.

“Last time when the inclusion of Pakistan in the MSCI Emerging Markets was announced (in June), the full market capitalisation criteria was $1.37 billion which has now increased to $1.53 billion,” it added.

Owing to Engro Corporation’s deletion from the global index and overall negative performance of the remaining five stocks at the PSX, Pakistan’s weightage in the MSCI Emerging Markets Index is expected to drop to 0.08% from the 0.14% assigned in June 2017, say local brokerage houses.

The PSX found its way back into the MSCI Emerging Markets in June 2017 after a gap of nine years. The inclusion, however, failed to stop foreign investors from selling shares at the Pakistan bourse since 2015.

The market recorded net foreign outflow of $98 million from June 2017 till last Friday while from January 2017 foreign selling had been estimated at $439 million.

“It should be noted that Pakistan’s market saw net foreign outflows of $315 million and $339 million in 2015 and 2016 respectively. We expect this trend to continue for the third consecutive year as well,” Topline Securities commented recently.



Small-cap index review

MSCI has, however, added Engro Corporation to its small-cap index and removed three Pakistan-based companies from the index which were Shell Pakistan, Ferozsons Laboratories and Pak Suzuki Motor Company.

With this, the number of PSX stocks in the MSCI small-cap index has dropped to 25 from 27.

The brokerage house expects Pakistan’s weight in the small-cap index to be revised downwards to 0.90%, down 0.20%.

Pakistani companies in the index include Engro Corporation, Bank Alfalah, Engro Fertilizers, Fauji Cement, Fauji Fertilizer Bin Qasim, Fauji Fertilizer Company, Honda Atlas Cars, Hub Power Company, IGI Insurance, Indus Motor Company, International Steels, DG Khan Cement, Kot Addu Power Company, Maple Leaf Cement, Millat Tractors, National Bank of Pakistan, National Refinery, Nishat Mills, Packages Limited, Pak Elektron, Pakistan Oilfields, Pakistan State Oil, The Searle Company, Sui Northern Gas Pipelines and Thal Limited.

Published in The Express Tribune, November 15^th, 2017.

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