Karachi: A report by Bloomberg today has raised questions over Pakistan’s re-inclusion into the MSCI Emerging Markets Index in June and as to why Vietnam, one of the region’s leading manufacturing hubs hasn’t been given that status and still languishes in the frontier markets realm.
The article cited that the IMF in its recent evaluation of the Pakistan Rupee (PKR) had stated the currency was overvalued by around 10pc to 20pc whereas the Vietnamese currency the dong was 10.3pc undervalued in comparison. Bloomberg added that whereas Pakistan maintained a trade deficit in comparison to Vietnam which had a trade surplus at the same time.
It also went onto mention that 18 months before a stock markets inclusion into the MSCI Emerging Market Index, it tends to rise considerably in anticipation and the KSE-100 index still remains 14pc higher since the pronouncement of its inclusion in June 2016. Currently, Pakistan only accounts for 0.1pc weightage of the emerging market indicator in comparison to 8.9pc of the Frontier markets index, the article said.
Pakistan’s reinstatement into the MSCI Emerging Market Index was expected to herald in an inflow of millions of dollars which never happened and instead the KSE-100 index has nose-dived 13pc since then, said Bloomberg. On the 5th of July, PKR fell sharply both in the interbank and kerb market to reach a 2.5 year high of Rs108 from Rs104.91 the previous day. The PKR has remained relatively stable since August 2015, and according to a Topline Security report, the currency has devalued annually by 5 percent in the last decade or so.
Further analyzing into the workings of the classification of a market as emerging or frontier, Bloomberg stated MSCI tends to pay a lot of focus on its liquidity status. It offered a comparative of Vietnam which has over 45 stocks that have a daily turnover of $1m, whereas Pakistan has only 19 of them that generate revenue of at least $1m on a daily basis.
Bloomberg’s report concluded that due to a massive downward spiral of the PSX, the country’s stocks have become the cheapest in Asia, which means that Pakistan is back to the level reserved for frontier markets.
