Morgan Stanley reclassifies Pakistani stocks

Announces three major changes in its quarterly review

KARACHI:

Morgan Stanley Capital International (MSCI) has announced three major changes with regards to Pakistani stocks in its global frontier market indices in the quarterly review announced on Friday. These changes will come into effect from February 28, 2023.

Global investors, who track MSCI frontier market indices, have around $10-12 billion worth of capital in hand to invest in stocks around the world.

MSCI announced adding the Engro Corporation from Pakistan into its global index – the MSCI Frontier Market (FM) Index. The index carries mid cap stocks from around the world.

It also announced deleting Lucky Cement from the FM index but said it would add the same into its MSCI Small Cap Index.

The global index provider also decided to delete Searle from its small cap index.

With the announced reshufflings, the number of Pakistani stocks in MSCI FM Index remained unchanged at two, with the Oil and Gas Development Company (OGDC) maintaining its status in the main index.

The number of Pakistani stocks in the small cap index will drop by one coming to a total of 17 stocks when the investment research firm implements its decision to delete Searle, downgrade Lucky Cement from the main index to the small cap index and upgrade Engro Corporation from the small cap index to the main frontier market index on February 28.

The change in stock prices and their trading volumes at the Pakistan Stock Exchange (PSX) in the recent past have changed the size of different stocks from small to mid-cap (capitalisation) stocks and from mid to small ones.

Speaking to The Express Tribune, Arif Habib Limited Head of Research Tahir Abbas said, “This provided bases to MSCI to add/delete Pakistani stocks from its frontier market indices.”

“Overall, the review is expected to be neutral for the market (PSX),” he said, adding that the addition of one stock or deletion of another in the MSCI FM Index will make no great difference.

“Pakistan’s weight in the MSCI FM Index is 0.68% at present. This has improved compared to 0.52% in the previous quarter,” he said.

Abbas explained that the total investment made by foreigners at the PSX has reduced to merely $300-400 million at present, compared to an all-time high of around $6-7 billion some seven-eight years ago (2014-15).

Hoping that foreign investors consider increasing investment in Pakistani stocks, he said, “Pakistan is expected to successfully unlock the International Monetary Fund’s (IMF) loan programme, which will give new life to the country’s economy and its stock market.”

The analyst recalled that foreign investment at the PSX in the month of January 2023 was a net $9 million, compared to a net outflow of over $3 billion from the Indian stock market in the same month.

“Foreign investments have also been withdrawn from Indonesian and Malaysian stocks in the month, while significant investments were made in Taiwan ($7 billion), South Korea ($5 billion) and Thailand (550 million) in the month,” he said.

Investors have projected PSX benchmark KSE 100 Share Index increasing to 50,000 points by the end of December 2023, compared to around 42,544 points on Friday.

KASB Securities Managing Director Saad bin Ahmed said, “Foreign investors have made renewed investment worth $9 million in January at the PSX. A large part of the investment was made in the oil and gas stocks – like OGDC and PPL – on reports that Pakistan is making an effort to resolve circular debt amid talks with the IMF.

“That is also why OGDC has maintained its position in the MSCI Frontier Market Index,” he explained.

The PSX benchmark KSE 100 Index slumped by 1.71% (or by 725 points) to 42,544 points on Friday on reports that the IMF team left town (Islamabad) without a staff level agreement.

They, however, anticipated Pakistan would sign the agreement soon after the IMF has handed over the MEFP (Memorandum of Economic and Financial Policies) to Pakistan on Friday.

Published in The Express Tribune, February 12^th, 2023.

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