KARACHI: The stock market “could generate additional flows” as a result of the upcoming quarterly index review by MSCI, which is a global provider of indices for passive investors.

According to a research note issued by Topline Securities on Friday, the Feb 9 review may result in Oil and Gas Development Company Ltd becoming a part of the main index.

The existing constituents from Pakistan in the MSCI Frontier Market Index (FM) include Lucky Cement Ltd, Habib Bank Ltd and MCB Bank Ltd. The brokerage doesn’t expect any major deletions from the main Frontier Market Index.

Pakistan was reclassified to the MSCI Frontier Market from the MSCI Emerging Market in September last year. Although the Pakistan Stock Exchange met the requirements for “market accessibility” under the classification framework for emerging markets, it failed to match the standards for size and liquidity. As a result, the stock market received a downgrade from emerging to frontier status by MSCI.

In its semi-annual review in November, MSCI assigned Pakistan a weight of 1.25 per cent in the FM Index. “We anticipate Pakistan’s weight to remain more or less the same in the upcoming quarterly index review,” it added.

MSCI started consultation in 2021 on the potential inclusion of the MSCI Pakistan Index to the MSCI FM 100 Index and the MSCI FM 15pc Country-Capped Index as part of the May 2022 semi-annual index review. The results of this consultation will coincide with the Feb 9 quarterly index review.

“We think the chances are high Pakistan will be inclu­ded in the MSCI FM 100 and FM 15pc Country-Cap­ped ind­i­ces, which could generate additional flows. How­ever, considering the number of fro­ntier funds and their size have reduced substantially, we don’t expect major inf­lows,” it said.

Published in Dawn, February 5th, 2022