MSCI announces Pakistan constituents for FM index

November 12, 2021 (MLN): Morgan Stanley Capital International (MSCI), a leading provider of critical decision support tools and services for the global investment community, in its Semi-Annual Review has announced the constituents from Pakistan for its Frontier Markets Index and Frontier Markets Small Cap Index.

The rebalancing will take effect on December 01, 2021.

Earlier, MSCI had announced to reclassify Pakistan from Emerging Markets (EM) to Frontier Markets (FM), as the country had been no longer meeting EM standards for size and liquidity criteria.

The number of securities in the main index will be 3 (HBL, MCB, LUCK), lower than 4 in the simulation as OGDC has been excluded. Consequently, Pakistan’s weight is now calculated at 1.25% against 2.3% in the simulation.

In FM small-cap index, 14 securities have been included while earlier 19 securities had been suggested for inclusion during the simulation shared by MSCI. The stocks which could not make it to the small-cap list include, PKGS, NBP, ABOT, BAHL, and INDU.

Overall, Pakistan will have 17 securities (3 in the main index and 14 in small-cap), lower than 23 in the simulation.

Meanwhile, it is important to note that prior to being reclassified as an Emerging Market in 2017, Pakistan had around 8-9% weightage in the Frontier Markets.

With regards to foreign inflows, Fahad Rauf, analyst at Ismail Iqbal Securities said that SYS is the only stock that was not part of MSCI EM but has made it to the MSCI FM list, which could attract some flows; albeit SYS is not a new stock for foreign investors.

Next in-line would be MSCI’s decision on the consultation on potential inclusion of Pakistan to the MSCI FM100 index and the MSCI Frontier Markets 15% Country Capped Index. This would be important from attracting flows of passive funds, he added.

To note, the result of this consultation will be announced along with Feb’ 22 Quarterly review and will be made part of the May’22 Semi-Annual Index Review (SAIR).

“We believe the foreign selling has remained a continuous phenomenon and would not be a major threat post-effective date of exit, albeit some pressure in large names LUCK, HBL, MCB can be witnessed, which would be a good time to build positions in these names,” he said.

 Local liquidity would continue to drive the market, while the resumption of the IMF program and monetary policy announcements would be more important for market direction, he stated.

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