MSCI downgrades Pakistan to FM


In step with market expectations, Morgan Stanley Capital Worldwide (MSCI) introduced early on Wednesday that it might place Pakistan Inventory Alternate (PSX) amongst lesser superior economies within the Frontier Markets Index with impact from December 1, 2021.

Pakistan’s bourse had been within the MSCI Rising Markets Index since Might 2017, when the benchmark KSE-100 index hit an all-time excessive of 53,000 factors, nevertheless it failed to remain at excessive ranges.

Apparently, the inventory market has largely factored within the MSCI’s recent determination as traders have continued to promote shares for the previous few days.

The MSCI’s transfer to downgrade Pakistan to Frontier Markets from Rising Markets stands “negative-to-neutral” for traders. They (international and home traders) could dump shares in a direct response to the choice and cherry-pick shares later at decrease costs.

The KSE-100 index dropped 188.56 factors, or 0.4%, and closed at a two-week low of 46,730 factors on Tuesday. It fell additional on Wednesday and shed 333.25 factors, or 0.71%, to settle at 46,396.71.

Consultants, nevertheless, consider the MSCI’s determination is a blessing in disguise as it’ll as soon as once more spark traders’ curiosity within the PSX with its 1.9% weight in Frontier Markets in comparison with a weight of simply two foundation factors in Rising Markets.

“The comparatively greater weight in FM will make the PSX engaging within the eyes of world traders in comparison with its negligible measurement in EM,” Arif Habib Restricted Head of Analysis Tahir Abbas mentioned.

Oil and Gasoline Improvement Firm (OGDC), Fortunate Cement, MCB Financial institution and Habib Financial institution Restricted (HBL) are the 4 corporations from the PSX which have certified for inclusion within the Frontier Markets Index.

They’d have a cumulative weight of 1.9% within the index as per their closing share worth on August 31, 2021, Aba Ali Habib Securities Analysis Analyst Zubair Jatoi mentioned in a brief commentary.

The scale of PSX could develop in Frontier Markets as Pakistan’s economic system has been on an enlargement mode for over a yr now. The economic system is predicted to develop 4.8% in present fiscal yr 2021-22 in comparison with 4% in FY21. It had contracted 0.5% in FY20.

“Final time, the PSX had a weight of over 9% within the FM Index (from 2008 to 2017),” Abbas recalled.

Barring Vietnam, Pakistan has stronger financial fundamentals in comparison with the peer economies like Kazakhstan, Kenya and Bangladesh in Frontier Markets. Higher fundamentals coupled with enlargement within the economic system would assist inflate the dimensions of PSX within the index, he mentioned.

The MSCI determination would assist appeal to international traders once more to the Pakistan bourse, who’ve continued to exit the marketplace for the previous few years.

“A big quantity (90-92%) of lively world traders monitor the FM index to take determination on funding in inventory markets across the globe,” he mentioned.

The brand new developments (rising economic system and the PSX reclassification) ought to help listed corporations to get well from the loss of their share costs. Accordingly, “the benchmark KSE-100 index ought to get well and go above 50,000 factors by the top of December 2021,” Abbas mentioned.

Earlier, it rose to a four-year excessive of practically 49,000 factors in June 2021 from a five-year low of round 27,000 factors in March 2020 within the wake of the Covid-19 pandemic.

In June 2021, MSCI proposed that the PSX needs to be downgraded to Frontier Markets from Rising Markets contemplating the downturn in share costs (market capitalisation) on the bourse since 2017 and accomplished session with market members (together with world traders) until August 31, 2021.

“This conclusion follows suggestions obtained from market members from its current session on a market reclassification proposal for the MSCI Pakistan Index,” MSCI mentioned in an announcement within the early hours of Wednesday.

“MSCI will reclassify the MSCI Pakistan Indexes from Rising Markets to Frontier Markets in a single step, coinciding with the November 2021 Semi-Annual Index Evaluate (SAIR).”

It’s scheduled to carry the semi-annual assessment on November 11, 2021 whereas the assessment determination will come into impact on December 1, 2021, in response to an announcement made by MSCI on August 11, 2021.

“Primarily based on a simulation utilizing professional forma knowledge as of August 31, 2021, this may result in the inclusion of 4 securities within the MSCI Frontier Markets Index with an estimated index weight of 1.9%,” it mentioned.

Though Pakistan’s fairness market meets the necessities for market accessibility beneath the classification framework for Rising Markets, it not meets the requirements for measurement and liquidity.

Extra particularly, the index continuity guidelines have been utilized because the November 2018 Semi-Annual Index Evaluate to keep up the required three constituents within the MSCI Pakistan Index, it mentioned.

“For the reason that November 2019 SAIR, there have been no securities within the MSCI Pakistan fairness universe that meet the Rising Markets measurement and liquidity standards inside the MSCI market classification framework.”

Revealed in The Categorical Tribune, September 9th, 2021.

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