KARACHI: Pakistan is set to be classified under the MSCI Frontier Markets from the Emerging Markets on November 11, 2021 with the change coming in effect by the end of the month. Pakistan has been hanging in the Emerging Markets since November 2018.
“Pakistan seemingly fetch an indicative weight of 1.9 per cent in FM as per [the] MSCI release, which is significantly lower than 9 per cent when the country exited FM back in 2017,” Hamza Kamal at AKD Securities said.
“While Argentina is downgraded from MSCI EM as a standalone index, potential reclassification to FM could further compress Pakistan’s weight in the index.”
Emerging Market Pakistan’s standard index participants namely Lucky Cement, MCB Bank Limited, and Habib Bank Limited (HBL) together with the Oil and Gas Development Company (OGDC) are likely to meet the frontiers quantitative criteria for standard index, while the total constituents would reach 23 from 16 in the Emerging market.
Traders said the total assets under management (AUMs) of the Emerging market funds currently stands close to $1.8 trillion, compared to AUMs of Frontier Market funds of $15 billion, which should result in net outflows settling close to $70 million to $80 million.
“However, the potential fresh allocation to the Frontier Market space from major funds going forward can result in reduced outflows or net inflows.”
Kamal said that the transition was unlikely to materially alter market’s participation dynamics, “Where foreigners occupy 15.3 per cent of the total market capitalisation, including strategic holdings, compared with the companies and individuals engrossing a cumulative share of 55.6 per cent in capitalisation”.
Hence, macro factors would continue to dominate the market direction where possible resumption of the International Monetary Fund (IMF) programme with the government addressing structural issues, ease-off in commodity prices, and relative calm on the political front could stretch the current rally at the bourse.
Together with the current review, the MSCI will open consultations for classifying Pakistan in the MSCI Frontier Markets 100 index and MSCI Frontier Markets 15 per cent Country Capped Index, with possible announcement in February 2022.
