July 05, 2024 (MLN): Foreign funds may sell $40 million to $150m of Pakistani stocks after the country was downgraded by FTSE Russell to frontier-market status, according to Intermarket Securities Ltd, Bloomberg reported.
“Pakistan’s demotion to frontier market status by FTSE Russell may effectively spell the end of passive ownership in the country, at least until criteria for emerging market status is met again,” Saad Ali, Intermarket’s director of research, wrote in a report.
FTSE cut Pakistan from its secondary emerging market list on Thursday after it failed to meet the minimum securities count, and the change comes into effect on September 23.
The resulting outflows from funds that track emerging-market indexes will put one of Asia’s best 2024 rallies to the test.
The benchmark KSE-100 has gained about 30% in dollar terms year to date, aided by $72 million of net foreign inflows.
That’s come after the country narrowly escaped a default last year and is expected to secure a new International Monetary Fund program that will help it keep pace on its debt payments.
To Ali, those reasons, along with attractive valuations, might help Pakistani stocks fight off any slump from outflows.
“With valuations still at about four times forward earnings, at a 50% discount to the long-term average, and interest rates on the way down, Pakistan equities should continue to hold appeal for the active foreign investor,” Ali wrote. “From this vantage, any passive selling may lead to good entry points for some of Pakistan’s top stocks.”
