KSE – 100 Index has seen it all in the last two years, from being the best performing index in the world to being the worst; it has gone through every technical formation, faced financial, political, and economic hailstorms. The June declaration by the Morgan Stanley Capital Index to transfer Pakistan from the Frontier Markets into the Emerging Markets Index had local investors’ mouths watering.

During the July of 2017, as Pakistan was included in the Emerging Markets (EM) Index of MSCI after being taken out from the Frontiers Market (FM), investors looking to invest in FM Portfolios offloaded their positions. In a ceteris paribus situation, the transition is relatively easy, but the timing of the MSCI decision for Pakistan was unfortunate to say the least.

During the vociferous announcement from FM to EM, the country was exposed on numerous economic, political fronts. The months succeeding the inclusion of Pakistan in MSCI – EM saw the ouster of ex-Prime Minister Mian Muhammad Nawaz Sharif, a warning in the form Exchange Rate fluctuation which was abruptly reversed by the then Finance Minister Ishaq Dar, opening of the Panama Leaks Trials against the ruling Sharif family, the disqualification of the Finance Minister and the perennial tussle for power among the country’s most powerful institutions.

Mr. Muhammad Rameez, Head of Sales at Foundation Securities, remarked that, “Following the inclusion, it is only logical the investors from Frontier Markets will offload their positions and which did happen, however the buying from EM Investors was delayed mainly due to the domestic situation of Pakistan.”

“Lack of interest, Macro instability, Political Uncertainties and the fears Exchange Rate volatility were some of the most important factors that contributed to the bearish run in the second half of 2017,” he said.

The situation during the last thirty days has changed too quickly, “We see a rebound in equities as investors return to take advantage of the attractive valuations, and with the exchange rate fluctuation done and dusted, investors are flocking back to seize the opportunity.”

Pakistan’s Foreign Investors’ Portfolio Investment (FIPI) numbers relative to the net of last six months during 2017 have gone during the December 2017 and January 2018. The Net FIPI during the period between July – December, 2017 was recorded at $ -113 million, with Foreign Corporates offloading more than $ 112 million worth of holdings. Overseas Pakistanis and Foreign Individuals also offloaded a sum of $ 1.41 million during the reported period.

“With the start of the new year, we see a rising interest in Pakistan’s Equities mainly from EM Investors, with expectation of significant inflows during the year 2018 as exchange rate situation in check and the increasing local optimism towards the equities, the rebound in prices had to follow” said Mr. Rameez.

“Commercial Banks, Oil & Gas Exploration and export heavy sectors will come out winners of the exchange rate changes during the month of December”, he remarked. Furthermore, as inflation rises, the case for rate hike seems much more plausible. “Rates will rise, given the recent trajectory of the underlying indicators; it is safe to assume that Central Bank will raise rates by 25 basis points during the first half of 2018, and 50 more basis points in the second half.”