MSCI Review: Resurgence of KSE-100 to improve Pakistan’s weightage in EM index?

January 16, 2020 (MLN): The equity market of Pakistan, particularly the KSE-100 index, is being widely applauded for continuiously surprising the market participants with its outlandishly brilliant performance in recent months.

The benchmark index, which was once highly looked down upon for its atrocious performance, for touching an all-time low in August 2019 at 28,000 points, left everyone in awe by making a recovery of 50% within a span of five months. By virtue of this baffling recovery, the KSE-100 index has managed to outperforme the MSCI-Emerging Market Index by nearly 32%, a report by BMA Research revealed.

Keeping in view this performance, several market spectators now believe that a review of the MSCI-Index is required to allow for the inclusion of certain stocks in the EM Index. BMA Research, in this regard, categorically states that the performance of PPL, ENGRO and UBL has made these companies worthy enough to be a part of the MSCI EM Index.

One of the reasons that warrants this review, is the fall in weight of Pakistan’s index in the EM-index. It is pertinent to note that Pakistan’s weight in the index stood at 14bps when it had been upgraded to the EM status. However, the weight fell sharply to 2.5bps after the removal of a key constituent such as LUCK, UBL and ENGRO. It is believed that entry of new stocks within the EM index will help elevate Pakistan’s weightage to approximately 9bps.

However, to be able to successfully enter the EM-Index, the above-mentioned companies will have to ensure that their total market capitalization is around $1,532 million, Free-Float adjusted market capitalization is $766 million and ATVR is 15%. Till now, PPL is the only company that has met the criteria of Market Capitalization, while all three companies have failed to satisfy the criteria pertaining to Free-Float capitalization. 

The report also shed some light on how the inclusion of these companies into the EM-Index would open doors for foreign investment in Pakistan’s capital markets. Previously, the incessant volatility and uncertainty in the macroeconomic dynamics had caused foreign investors to withdraw a whopping $740 million from Pakistan’s market. While the situation has eased considerably after the stabilization of economic factors, it is believed that an improvement in Pakistan’s weight in the EM-Index would allow for further inflow of foreign investment in the country.

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