KARACHI: With business as usual at the Pakistan Stock Exchange (PSX) these past two days that witnessed gross portfolio outflows of $18 million on Tuesday, most investors wondered if the commotion over the heavy influx of Emerging Market passive funds is tenable on Wednesday (May 31).

Managing Director of PSX Nadeem Naqvi told Dawn that amounts could vary but upwards of $200m was anticipated to enter the PSX.

He said that for the last one week, the daily traded value of shares had surged between $250m to $300m, against the previous average of $180m, but he could not say how much of that related to MSCI Emerging Market passive tracker funds.

Mr Naqvi said “anecdotal evidence suggests that major portion of the fund could flood in the last hour, the reason being that passive funds that track the EM would want to avoid ‘Tracking error’, defined as difference between the price of buying and the price at which the stock would open in the EM on June1.”

He added that in line with instructions from the Securities & Exchange Commission of Pakistan, systems had been tested to handle huge inflows and that margin and capacity of the brokerages had been monitored.

Most stock strategists believed the demand for stocks worth $200m to $400m would be there, but it has to be seen how much of that is met. The supply could come from Frontier Market Funds, which retain heavy investment in PSX or even local participants who might want to sell and take profit.

According to the May 15 semi-annual review of MSCI, six companies have qualified for the main EM index. These are Engro Corporation, Habib Bank, Lucky Cement, MCB Bank, Oil and Gas Development Company and United Bank.

These will be EM passive funds target stocks. Another 27 listed companies had qualified for the inclusion in the small cap index, but for the moment those command scarce investor attention.

Published in Dawn, May 31st, 2017