Stocks see record 1,811-point fall as MSCI upgrade takes effect
KARACHI: Pakistan entered the MSCI emerging-market index on Thursday — with nothing to cheer. At the close of the trading session, stocks at the Pakistan Stock Exchange (PSX) were bleeding profusely as the benchmark KSE-100 index succumbed to a record single-day decline of 1,811 points, or 3.58 per cent.
It was the biggest drop in terms of points.
In the past four days of a losing streak, the KSE-100 index has lost 3,856 points and the market capitalisation has eroded by Rs653 billion.
For over a year since the MSCI first signalled its willingness to take back Pakistan into the emerging-market fold, foreign funds, investors, local and foreign market analysts, brokers and agents were engaged in a prolonged celebration. The six stocks that were selected for inclusion in the MSCI emerging-market index continued to sell like hot cakes. Stock prices of Engro Corporation, Habib Bank, Lucky Cement, MCB Bank, Oil and Gas Development Company and United Bank rose phenomenally in the run-up to the upgrade, with buyers expecting to sell them at premium to emerging-market passive funds.
New York-based MSCI Inc is a leading provider of research-based indexes and analytics. It downgraded the Pakistani stock market eights year ago to its frontier-market index after the local bourse closed the exit door for foreign investors.
Almost everyone espoused inflows of $250m to $500m into the PSX from passive emerging-market funds/investors, mainly on May 31 and June 1. Big local brokerage houses and PSX officials were trotting the globe and returning with optimistic feedback from major Wall Street and Hong Kong firms.
So where did they go wrong?
The first signs that something was amiss were provided when foreign investors continued their selling spree in the PSX with a net outflow of $38.6m in May, unlike Qatar which had received buy orders of $469m and the United Arab Emirates got $160m leading to the day of inclusion in MSCI emerging-market index in 2014.