MSCI Preview: Pakistan likely to be tried for downgrade consultation

June 25, 2019 (MLN): Morgan Stanley Capital International (MSCI) is set to announce the results for its Annual Market Classification Review - 2019 today and Pakistan is most likely to go under consultation for a downgrade from Emerging Market (EM) index to the Frontier Market (FM) Index, as per Mr. Mohamad Al Hajj for EFG Hermes.

In his MSCI preview note, Mr. Al-Hajj wrote that “Pakistan is the most likely candidate for such a consultation, as two of its three constituents in the standard index fail free float market cap requirements for existing constituents, even after the 33% buffer for existing constituents.”

Back in March 2019, Pakistan was only 3bps of the EM Index. Moreover, since Habib Bank Limited (HBL)’s market capitalization remained below the revised minimum market size criteria for EM, there were chances of its elimination from EM in the semi-annual index review which was to be announced May 13, 2019.

Since at least 3 companies from a country should meet the minimum market size criteria for that country to remain on the EM index, this had meant that the country was down for a stepdown to FM.

However, in this semiannual index review the MSCI announced no change in Pakistan’s status within the MSCI Emerging Market (EM) Index.  

According to Topline Securities, the buffer rule had most likely saved the day for Pakistan.

Going by EFG Hermes latest report, Pakistan continues to fall short of fulfilling the criteria to remain in the EM Index, despite the buffer rule facility.

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