Top boss says KSE expected to join MSCI Emerging Markets

Fundamentals strong, reclassification will change dynamics of equity market: Naqvi

KARACHI:

Karachi Stock Exchange (KSE) Managing Director Nadeem Naqvi said on Wednesday Pakistan is expected to join the MSCI Emerging Markets Index in June.

Speaking to reporters after the German consul general rang the gong at the KSE, Naqvi said he is “very hopeful” about entering the Emerging Markets category that the leading provider of international investment decision support tools revises every year in June.



“Market fundamentals are strong. Results of most listed companies were better than expected last quarter. The average annual return on equity of our companies is 23%, which is the best in Asia,” he said.

Global 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.

High expectations

Pakistan’s reclassification as an emerging economy will dramatically change the dynamics of the Pakistan equity market: MSCI Emerging Market Index is tracked by global funds worth about $1.7 trillion, according to Bloomberg.



Pakistan was part of the MSCI Emerging Markets between 1994 and 2008. However, the KSE’s temporary closure in 2008 led MSCI to remove it from the Emerging Markets and classify it as a “standalone country index”.

MSCI made Pakistan a part of the Frontier Markets Index in May 2009 and it has remained as such since then.

“Government policies have become stable to a large extent. Pakistan’s growth rate has also stabilised. The International Monetary Fund (IMF) has put Pakistan in the emerging markets’ category,” Naqvi said while explaining the reasons for his optimism.



Responding to a question about continuous outflows of foreign investment from the stock market, the KSE MD said it is largely in line with the global trend. As much as $1.5 trillion has left emerging/frontier markets globally in the last year and a half, he said. “Pakistan is small fry to the global equity market … we also took a hit,” he said. Foreign funds amounting to approximately $230 million have left the Pakistan equity market since the beginning of 2015.

However, he expressed confidence that foreign funds will start pouring in back once the fear about the impending interest rate hike by the US Federal Reserve subsides.

‘German companies interested in Pakistan’

Speaking on the occasion, German Consul General Rainer Schmiedchen said all German companies are “more or less interested in investing in Pakistan,” particularly in power, renewable energy and textile sectors.



“All big German companies, like BMW, Mercedes-Benz, BASF and Linde, are in Pakistan already,” he said.

Replying to a question about the entry of German car-makers in Pakistan’s auto sector, the consul general said such a decision will have to wait until the announcement of the new auto policy. “Be assured that the German car industry is interested in the Pakistani market. There is no doubt about that,” the German consul general said.

Published in The Express Tribune, November 12^th, 2015.

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