MSCI adds record 15 Pakistani firms

Also incorporated 41 companies listed on PSX, sparks investor optimism

KARACHI:

In a remarkable development, renowned global stock market analytics provider, Morgan Stanley Capital International (MSCI), has caught the attention of investors by announcing the inclusion of a record 15 Pakistani listed companies in one of its major MSCI Frontier Market Indexes. This move, set to take effect from September 1, 2023, will bring the total number of Pakistani companies in this international index to 17, up from two at present.

Adding to the momentum, MSCI has also incorporated another 41 companies listed on the Pakistan Stock Exchange (PSX) into its MSCI Frontier Markets Small Cap Indexes. These influential decisions were unveiled in the company’s latest quarterly indexes review results, generating heightened anticipation among foreign investors, who closely monitor these indexes when making investment decisions in global stock markets.

This bold decision by MSCI is expected to prompt foreign investors to reconsider Pakistan’s stock market, seeking out promising low-priced stocks that offer potentially higher returns. Notably, foreign investors have been net sellers in the domestic bourse for an extended period, making this shift in sentiment particularly notable.

With these additions, the number of Pakistani companies finding representation in global indexes will soar to 58, a significant jump from the current count of 16. These companies span various sectors, including energy, cement manufacturing, banking, fertiliser production, technology, and automobile manufacturing.

The selection of Pakistani companies for these prestigious global indexes comes as a result of their rebounding market values (share prices) on the PSX. The benchmark KSE 100 Index has surged approximately 20%, reaching a six-year high at 49,000 points, following Pakistan’s successful acquisition of a new $3 billion International Monetary Fund (IMF) loan programme for nine months. This loan has not only averted the looming risk of default on foreign debt repayment but also supported the nation in achieving a moderate economic growth trajectory in the current fiscal year (2023-24), compared to the previous year’s contraction.

The week leading up to this announcement witnessed profit-taking in the market due to expectations of the setup of an interim government and general elections later in 2023. Rumours of potential election delays led to aggressive selling in one session, causing the benchmark index to briefly dip below 48,000 points.

However, Friday brought a surge in the KSE 100 Index by 1,000 points, largely attributed to news of MSCI’s decisions regarding Pakistani companies. Although the gains eventually settled at 616 points, or 1.29%, closing at 48,424 points, the positivity in the market was palpable.

Head of Research at Arif Habib Limited, Tahir Abbas noted that these modifications are set to significantly boost Pakistan’s weight within the MSCI Frontier Market Index, from the current 0.6% to 2.7%. This increase in weight is expected to elevate the visibility of Pakistani companies in the global index, attracting foreign investors to consider Pakistani stocks.

In terms of US dollar value, the cumulative market capitalisation of the stocks added to the MSCI Pakistan FM Index has risen by 15% since the last MSCI review in June 2023. The combined market capitalisation of stocks added to the MSCI Pakistan Small Cap Index has surged by 19% since the same review.

Interestingly, among all the countries, Pakistan has witnessed the most significant increase in weight in the FM Standard Index (+2.1%). This stands in contrast to heavyweight countries like Morocco, Romania, and Kazakhstan, which have experienced declines of 1.2%, 1%, and 1.1%, respectively.

Topline Securities, CEO, Muhammad Sohail recalled that Pakistan was reclassified into the MSCI Frontier Market from the Emerging Market category in November 2021. The frontier market index includes less advanced stock markets from around the world, as compared to the advanced economies that are included in emerging markets, it has been learned.

He further highlighted that foreign participants are once again showing interest in Pakistan. Over the past six weeks, foreign corporates have conducted net buying of $27 million, reflecting renewed investor confidence.

Despite Pakistan’s current foreign exchange reserves resting at $8.04 billion, the central bank has efficiently facilitated the remittance of foreign portfolio investment funds abroad. Market experts are cautiously optimistic about the trajectory of the PSX, projecting it to reach 52,000 points by the close of the current fiscal year, driven by a moderate economic revival and the anticipated return of political stability post-elections.

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

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