Positive sentiment on KSE as MSCI increases number of Pakistan-based companies in its indices

Pakistan’s weight in MSCI FM Index will go up to 5.9%-6.2% from the existing 4.1%, says senior research analyst

KARACHI: Following the semi-annual review for the MSCI equity indices on Thursday, the provider of international investment decision support tools has announced it will increase the number of Pakistan-based companies in the MSCI Frontier Markets Index as well as MSCI Frontier Markets Small Cap Index.

The news has triggered a positive sentiment on the Karachi Stock Exchange (KSE), as investors welcomed the latest MSCI review, which is expected to bring more foreign portfolio investment and increased volumes to the country’s equity market.

International institutional investors use different MSCI indices - such as frontier, emerging, China and US markets - to create balanced portfolios aimed at generating maximum returns while keeping in view their overall risk appetite.

The review will result in the addition of four companies and removal of one company from Pakistan to the MSCI Frontier Markets Index. Pakistan Tobacco, K-Electric, Lucky Cement and Pakistan State Oil (PSO) will become part of the MSCI Frontier Markets Index while Hub Power Company will leave the index June 2 onwards.

Speaking to The Express Tribune, Topline Securities senior research analyst Vahaj Ahmed said the inclusion of new companies in the index has more to do with the fact that two of the major economies – Qatar and United Arab Emirates (USE) – have now been reclassified as MSCI emerging markets as opposed to their previous status of frontier markets.

“As on April 30, the UAE and Qatar had weights of 18.9% and 16.3%, respectively, in the MSCI Frontier Markets Index. But constituents from these economies will not be eligible to be on the MSCI Frontier Markets Index anymore,” Ahmed said, noting that no other countries have been added to the MSCI Frontier Markets in their stead.

“As a result, Pakistan’s weight in the MSCI FM Index will go up to 5.9%-6.2% from the existing 4.1%,” he said.

As for the MSCI Frontier Markets Small Cap Index, nine companies from Pakistan have been added while three companies have been dropped out. Abbott Laboratories, Dawood Hercules, Fauji Cement, Habib Metro Bank, IGI Insurance, National Foods, Packages Limited and Shell Pakistan and Hub Power Company have been added to the MSCI Frontier Markets Small Cap Index while the removed companies include ICI Pakistan, Lucky Cement and PSO.

As many as 12 Pakistani companies currently feature on the MSCI Frontier Markets Index, which are Oil and Gas Development Company, MCB Bank, Fauji Fertilizer Company, United Bank, Pakistan Oilfields, Engro Corporation, National Bank, Habib Bank, Pakistan Petroleum, Hub Power Company, Pakistan Telecommunication Company and Fatima Fertilizer Company.

Following June 2, however, the number of Pakistani companies on the MSCI Frontier Markets Index will increase to 15 because of the deletion of Hub Power Company and the addition of Pakistan Tobacco, K-Electric, Lucky Cement and PSO.

Ahmed said stock prices of the companies recently added to the MSCI indices tend to go up in the aftermath of index review. No wonder K-Electric is the most traded stock on the KSE on Thursday so far, with volumes exceeding 62 million shares until 2:00pm.