MSCI to announce consultation outcome on Pakistan’s inclusion to FM

February 07, 2022 (MLN): Morgan Stanley Capital International Inc (MSCI), a leading provider of research-based indexes and analytics, will announce the results on the potential inclusion of the MSCI Pakistan Index to the MSCI Frontier Markets 100 Index and the MSCI Frontier Markets 15% Country Capped Index in the upcoming Quarterly Index Review (QIR) scheduled to be held on Feb 09, 2022.

While the same results will be applicable from May 2022 Semi-Annual Index Review (SAIR).

To recall, MSCI, on September 07, 202, had decided to downgrade Pakistan from Emerging Markets (EM) to Frontier Markets (FM) as the Pakistani equity market didn’t meet the standards for size and liquidity, although it met the requirements for market accessibility under the classification framework for EM.

The American finance company sought feedback from market participants on this reclassification proposal. This consultation does not, in any way, affect the reclassification of the MSCI Pakistan Index to the MSCI Frontier Markets Index.

“For MSCI Pakistan index, we believe there would be no change and LUCK, HBL and MCB will continue to remain part of it with Pakistan’s weight of around 1.22%,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL) said.

Also, the low FIF factor is the major reason, despite fulfilling total and free-float market cap requirement, for OGDC, PPL and MARI to not be part of the MSCI Pakistan index.

MSCI had indicated that MSCI Pakistan Index would have a total of 23 constituents. On the other hand, Pakistani securities would have a simulated weight of 5.8% in the MSCI Frontier Markets 100 Index.

However, as per the latest publication of the MSCI Pakistan Investable Market Index (IMI) dated Dec’21, the total constituents have declined to 17 which means that some of the constituents are no more eligible
for inclusion in the MSCI FM 100 and FM 15% capped index. The exclusions from the FM 100 Index include OGDC, BAHL, SEARL, PKGS, NBP and ABOT.

According to the research report by AHL, a total of 12 constituents from Pakistan are expected to be added to the MSCI FM 100 Index. These companies include LUCK, HUBC, ENGRO, HBL, UBL, MCB, FFC, SYS, MARI,
EFERT and PPL with a cumulative weight of 3.64% in the index.

The highest weighted constituent will be LUCK (weightage of 0.46%) while the lowest weighted company will be PPL.

“The effective date for inclusion is the May 2022 MSCI SAIR, however, we believe that MSCI FM 100 Index companies will come under the limelight post-Feb 2022 QIR. Assuming funds tacking MSCI FM 100
Index at USD 2000-2500mn, we can expect foreign inflows to the tune of USD 75-95mn in May’22 while the active flows could materialize before May 2022,” he noted.

Highlighting the MSCI FM universe, barring Vietnam, the fundamentals of the KSE-100 index are relatively stronger than those of the peer markets (with a higher weight) with valuations at very enticing levels. Overall dynamics of the KSE-100 index are comparatively stronger than the peer markets with a higher weight such as Kazakhstan, Kenya, etc, he added.

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