Fatima Fertilizer has joined the ranks of other top local companies as it has been added to Morgan Stanley Capital International (MSCI) Pakistan Index and MSCI Frontier Index from November 30, according to latest MSCI quarterly review.
MSCI, a leading provider of investment decision tools worldwide, is widely used by top global fund managers to track a stock exchange’s position and make fund allocations accordingly.
Pakistan part of the MSCI Frontier Index witnessed its weight rising slightly to 4.4% against 4% in June, data shows.
Pakistan is sixth in the index weight-age wise and is the highest weighted South Asian country that includes Sri Lanka and Bangladesh. Neighbouring India comes in the MSCI Emerging Markets Index which stands above the Frontier Market Index.
Pakistan, after remaining part of the MSCI Emerging Market Index for 14 years from 1994 to 2008, was classified down a level to Frontier Markets after the infamous price floor was imposed following the crash of benchmark index by 42 per cent within a couple of months in 2008.
The country’s elevation to the higher category does not seem to be happening anytime soon as MSCI in its annual review in June termed the market ‘borderline in nature’. Only three companies in the local market – Oil and Gas Development Company, MCB Bank and Fauji Fertiliser Company – meet the MSCI Emerging Markets minimum size requirements.
Changing the status of an MSCI country index should be viewed as an irreversible movement, which does not hold true in Pakistan’s case currently, according to MSCI.
In the annual classification review in June, the decision regarding upgrade of Qatar and UAE to MSCI Emerging Markets from MSCI Frontier Markets was deferred for six months to December. The additional period was allocated to allow more time to regulators and stock exchanges to address concerns raised by international institutional investors.
Opinions remain divided on the probability of the upgrade going through as some of the issues are yet to be completely sorted out, according to a KASB Securities research note.
On the flip side, UAE has begun consultations with market participants to introduce securities lending and borrowing regulations and also allow short selling in the first half of 2012, in a bid to improve its market accessibility in terms of MSCI criteria.
From Pakistan’s perspective, the upgrade of these two markets should lead to 1.3% weight-age gain in MSCI Frontier Markets to 5.7%, adds the note.
Published in The Express Tribune, November 17th, 2011.