MSCI unlikely to consider Pakistan for emerging market category
The MSCI considers Pakistan to be insecure in terms of financial and institutional framework.
The MSCI considers Pakistan to be insecure in terms of financial and institutional framework and will not reclassify the MSCI Pakistan Index as an emerging market.
The Emerging Market Index is designed to measure equity market performance in global emerging economies and is maintained by Morgan Stanley Capital International (MSCI) and is used as a common benchmark for world stock funds.
“This is a major setback for Pakistan and will affect the amount of foreign investment in our market as investors usually target emerging and not frontier markets,” said the CEO of Topline Securities, Mohammad Sohail. He explained that regulators should take this very seriously and take steps to rectify the problem as this will affect the money that comes into Pakistan. This was a great chance that was missed, he said.
MSCI’s main problems with Pakistan are that its stock market’s capitalisation is too small, and the volumes that it generates are not enough.
Analysts knew that Pakistan had progressed since it was downgraded by MSCI to Frontier classification, according to KASB Securities. Some analysts were hopeful that the country would be upgraded, making it an interesting place to invest.
The MSCI has decided not to include the MSCI Pakistan Index in the review list for potential reclassification to Emerging Market as part of the 2011 Annual Market Classification Review. It will continue to monitor Pakistan’s market over the next year. This means that there are no chances of being classified as an emerging market for at least two years.
They point out that the current equity market is characterised by a very limited number of sizeable securities as well as by a fragile financial and institutional framework as highlighted by the 2008 crisis.
According to them, an upward migration in their classification framework can only be considered if the upwards change is deemed to be irreversible. This is why they have decided against reclassification of Pakistan, even though there have been some positive developments in its equity market over the last year. These included the market returning to normal functioning since the removal of the floor rule in late 2008.
In the specific case of the MSCI Pakistan Index, a reclassification to the Emerging Market status could not yet be considered irreversible as the resulting index would only include three constituents which marginally meet the minimum size requirements for Emerging Markets.
Pakistan has 13 constituents in the MSCI Frontier Markets Index with a total weight of around four per cent.
Emerging markets are considered relatively risky because they carry additional political, economic and currency risks. Emerging markets are volatile and investors should be ready for chances of large profit at the risk of large losses.
Though there is an upside, these markets and their performance are generally less correlated with developed markets. As such, they can play a role in diversifying a portfolio which reduces overall risk.
Published in The Express Tribune, June 23rd, 2010.
The Emerging Market Index is designed to measure equity market performance in global emerging economies and is maintained by Morgan Stanley Capital International (MSCI) and is used as a common benchmark for world stock funds.
“This is a major setback for Pakistan and will affect the amount of foreign investment in our market as investors usually target emerging and not frontier markets,” said the CEO of Topline Securities, Mohammad Sohail. He explained that regulators should take this very seriously and take steps to rectify the problem as this will affect the money that comes into Pakistan. This was a great chance that was missed, he said.
MSCI’s main problems with Pakistan are that its stock market’s capitalisation is too small, and the volumes that it generates are not enough.
Analysts knew that Pakistan had progressed since it was downgraded by MSCI to Frontier classification, according to KASB Securities. Some analysts were hopeful that the country would be upgraded, making it an interesting place to invest.
The MSCI has decided not to include the MSCI Pakistan Index in the review list for potential reclassification to Emerging Market as part of the 2011 Annual Market Classification Review. It will continue to monitor Pakistan’s market over the next year. This means that there are no chances of being classified as an emerging market for at least two years.
They point out that the current equity market is characterised by a very limited number of sizeable securities as well as by a fragile financial and institutional framework as highlighted by the 2008 crisis.
According to them, an upward migration in their classification framework can only be considered if the upwards change is deemed to be irreversible. This is why they have decided against reclassification of Pakistan, even though there have been some positive developments in its equity market over the last year. These included the market returning to normal functioning since the removal of the floor rule in late 2008.
In the specific case of the MSCI Pakistan Index, a reclassification to the Emerging Market status could not yet be considered irreversible as the resulting index would only include three constituents which marginally meet the minimum size requirements for Emerging Markets.
Pakistan has 13 constituents in the MSCI Frontier Markets Index with a total weight of around four per cent.
Emerging markets are considered relatively risky because they carry additional political, economic and currency risks. Emerging markets are volatile and investors should be ready for chances of large profit at the risk of large losses.
Though there is an upside, these markets and their performance are generally less correlated with developed markets. As such, they can play a role in diversifying a portfolio which reduces overall risk.
Published in The Express Tribune, June 23rd, 2010.