May 14, 2019 (MLN): Morgan Stanley Capital Index (MSCI)’s semi-annual index review took place earlier today and its results toned down markets’ anxiety levels by many folds as it announced no change in Pakistan’s status within the MSCI Emerging Market (EM) Index.
While Pakistan had been dreading a downgrade to the Frontier Market (FM) Index prior to this review, the results turned out to be a source of comfort in these turbulent times as there was no mention of putting any stock under review either.
All 3 constituents of Pakistan (HBL, OGDC, and MCB) managed to secure a status within the Standard Index.
The market responded to this news by taking up the equity market’s performance during early hours of day, before prevalent pessimistic sentiments that are looming the trading floors these days, took the market down again.
According to Topline Securities, “Buffer Rule’ most likely saved the day for Pakistan whose weight in MSCI EM Index is now estimated at 0.03%, down 7-8bps since its inclusion in June 2017.”
Explaining this phenomenon in its earlier note, Topline had said that, “MSCI’s ‘Buffer Rule’ of 2/3rd of Free Float and Full Market Cap of $494 million and $988 million, respectively, will likely keep Pakistan’s market in the EM index for now.”
However, three of Pakistan’s securities have been removed from the MSCI Small Cap index in this review, such as Fauji Cement (FCCL), Fauji Fertilizer Bin Qasim (FFBL) and International Steels (ISL).
Although Pakistan successfully sidestepped a downgrade this time around, Analysts at Spectrum Securities expect the country’s weight in the MSCI Global Standard Index to shrink to 0.03%.
“This was bound to happen due to recent economic hurdles which Pakistan is facing, especially the devaluation of PKR against USD which has reduced their market capitalization,” reads a review note on this occasion, published by the Research House.
Intermarket Securities has pointed out that the inclusion of “Saudi Arabia (1.42% weight, to be added in a phased manner until Aug’19) and Argentina (0.26% weight to be added with this review),” to the index along with the possibility of “China A shares weight to progressively increase to 1.76%”, will further shrink Pakistan’s weight in the main index.
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