Habib Bank ousted from MSCI Frontier Markets Index

MSCI used by global fund managers to track stock exchanges worldwide.

KARACHI:

MSCI has added four companies and taken 12 companies off the Frontier Markets Index with Habib Bank Limited from Pakistan being one of them.

The latest review of the Frontier Markets Index – constituting companies from 31 countries – has reduced the total number of companies from Pakistan to 12.

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 allocate funds accordingly.

“Pakistan’s weight in the MSCI Frontier Markets will nudge slightly down to 4.4% from the current weight of 4.7%,” says a KASB Securities research note on Wednesday.

The overall changes in the index increased weights of Fauji Fertilizer Company, United Bank, Engro Corporation and National Bank of Pakistan while it reduced holding of Pakistan Petroleum, Pakistan State Oil and Hub Power Company.

Pakistan is fifth in the index weight-age wise and is the highest weighted South Asian country in the index that includes Sri Lanka and Bangladesh. Neighbours India comes in the MSCI Emerging Markets Index which is an index above the Frontier Markets Indices.

Pakistan, after remaining part of the MSCI Emerging Market Index for 14 years from 1994 till 2008, was shifted down a level to Frontier Markets after the infamous price floor rule imposed following the benchmark index crashing 42 per cent within a couple of months in 2008.

The decision regarding upgrade of Qatar and UAE to the higher index, MSCI Emerging Markets, was deferred for six months.

From Pakistan’s perspective, the upgrade of these two markets – Qatar holding 14.63% and UAE with 9.69% of the index – should lead to 1.3% gain in MSCI FM to 5.7%, says the note.

The potential for Pakistan’s inclusion in MSCI Emerging Markets remain restricted by the fact that only three companies – Oil and Gas Development Company, MCB Bank and Fauji Fertilizer Company – currently meet the size criteria of $1,010mn market capitalisation and $505 million free float, which was the key reason highlighted during the MSCI annual review held in June 2011.

The other two factors as per MSCI were changing the status of Pakistan country index should be viewed as an irreversible movement and the lack of investor interest on Pakistan’s upgrade. However, MSCI has sought feedback from investors on Pakistan’s upgrade to MSCI EM during the upcoming annual review in June 2012. “If and when MSCI decides to share any of the feedback, it should be keenly tracked to review future positioning of Pakistan in MSCI,” adds the note.

MSCI also added four companies including Arabtec Holding from United Arab Emirates, Oman Cement Company and Oman International Bank.

Published in The Express Tribune, May 17^th, 2012.