Morgan Stanley Capital International raises Pakistan weight to 0.023pc in EM index

Published May 13, 2021
Overall, Pakistan weight in the MSCI EM Index would be slightly raised to 0.023pc from 0.016pc. — MSCI website/File
Overall, Pakistan weight in the MSCI EM Index would be slightly raised to 0.023pc from 0.016pc. — MSCI website/File

KARACHI: The MSCI on Wednesday announced outcome of its Semi-Annual Index review which to the surprise of some major market participants was addition of Lucky Cement to the MSCI Pakistan Index under the MSCI Global Standard Index in place of Oil and Gas Development Company (OGDC), which was eased out as it fell short of the criteria.

The other two constituents would be MCB Bank (MCB) and Habib Bank (HBL). The changes would be effective from May 28.

Under the MSCI Global Small Cap Indexes, TRG Pakistan (TRG) has been added while Indus Motors (INDU), Lucky Cement, National Bank of Pakistan (NBP) and Packages (PKGS) have been removed.

Additionally, Pakistan’s weight in the small cap index has been revised to 0.379pc. Overall, Pakistan weight in the MSCI EM Index would be slightly raised to 0.023pc from 0.016pc.

Lucky Cement makes a surprise entry in standard index

Tahir Abbas, head of research at Arif Habib Ltd, said that his calculation showed that the inflows in Lucky scrip could amount to $39.65m while estimated outflows in OGDC may clock in at $16.69m. On the small cap flows, he believed that funds invested in Lucky under small cap might not result in offloading the stock while outflows from NBP could be $3.78m; Indus Motors $4.0m and Packages $3.46m. On the inflow side, TRG may secure $17.46m.

“In all, net inflow of $29.18m is expected ($22.96m net inflow from standard index and $6.22m net inflow from small cap).”

To recall, the reclassification of the Pakistan Index from MSCI Frontier Markets (FM) to MSCI Emerging Markets (EM) in June 2017 was widely believed to be a significant event for the Pakistani market as it was thought to provide access to a larger pool of foreign funds tracking EM markets. It had propelled KSE-100 index to an all-time high of 52,000 points. But instead of net inflows, the market saw a mass exodus. The misjudgement caused the market dearly and the index is still trying to claw up to anywhere near 50,000 points.

So was Pakistan better off in the MSCI FM? A stock strategist said that “Pakistan had a wider exposure due to a larger canvas and penetration in the FM and caught interest of foreign investors with its higher weightage”.

But most participants do not subscribe to that view.

Zulqarnain Khan, Executive Director at Next Capital Limited, said that being in the EM offers Pakistan prominence on the radar of bigger foreign funds. “Besides, it also helps in attracting Foreign Direct Investment (FDI)”.

Published in Dawn, May 13th, 2021

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