On Wednesday, the Morgan Stanley Capital International (MSCI) upgraded Pakistan’s status by adding a new company from the country to its mainstream global Frontier Market (FM) index, a move that bolstered global investors’ confidence in Pakistan.
Global investors, with funds totalling $10 billion, track this index to make investment decisions worldwide, including in Pakistan.
With the addition of the National Bank of Pakistan (NBP) to the main index, the total number of Pakistani companies in the FM index now stands at 21. The inclusion of NBP will officially take effect from June 1, 2024.
This decision by MSCI to include NBP in the FM index was announced following the conclusion of its semi-annual review of global indexes, conducted in the early hours of Wednesday according to Pakistan Standard Time.
Over the past year or so, MSCI has consistently added Pakistani companies to the Frontier Market index during almost every quarterly and semi-annual review, as these companies have met the criteria for an increase in their share prices on the Pakistan Stock Exchange (PSX).
In its previous quarterly review in February 2024, three Pakistani companies were added to the Frontier Market index.
The substantial increase in share prices is evident from the PSX benchmark KSE 100 Index, which surged to an intra-day record high above 75,000 points on Wednesday from around 40,000 points in June 2023, marking an outstanding return of 87.5% over the past 11 months.
However, MSCI made no additions or deletions from the MSCI Pakistan Frontier Market Small Cap index, maintaining the total number of local companies in the country’s standalone index at 56. In February 2024, the index provider added 19 Pakistani companies to the country-specific index.
According to Topline Research’s post semi-annual review commentary, the overall weight of Pakistan in the Frontier Market index, with the inclusion of NBP and the increase in the free float market cap of existing 20 constituents by 12%, is expected to rise by 30-40 basis points to 4-4.3%.
Likewise, Pakistan’s weight in the MSCI Small Cap Index is also expected to increase, despite no additions to the index, as the existing 56 constituents of Pakistan have returned 16% in US dollar terms since February 1, 2024 (the last review), compared to a 5% decline in the MSCI Frontier Market Small Cap index. The expected increase in Pakistan’s weight in the small-cap index is estimated to be in the range of 50-60 basis points, reaching 3.4-3.5%.
Reports suggest that assets under management (AUMs) benchmarked to the MSCI FM index amount to approximately $10 billion, with a free float of $119 billion. With this estimation, a gross inflow of $30-40 million is expected due to the change in overall weight and the addition of NBP.
Foreign corporates have already bought shares worth $34.4 million and sold shares worth $20.7 million since May 2, 2024, it reported.
Looking at the buying pattern of foreigners over the past one or two weeks, it is believed that Pakistan has already experienced a portion of these inflows, with the rest expected to come by the implementation date, i.e., June 3, 2024.
Arif Habib Limited reported that the PSX benchmark KSE100 index outperformed all MSCI frontier markets and the MSCI FM index during the fiscal year 2024 to date (July-May), with a return of 85%. Additionally, Pakistan remains the second most liquid market in the MSCI FM space, with an average daily traded value of $54.2 million year to date.
Overall, it is expected that NBP’s weight in the MSCI main index will be around 0.06%, with an anticipated inflow of $2.5 million (17.5 million shares at Wednesday’s closing).
Published in The Express Tribune, May 16th, 2024.
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