National Bank of Pakistan added to MSCI Frontier Market Index

Inclusion expected to boost Pakistan's index weight; foreign investment shows positive trends ahead of June implementation.

Morgan Stanley Capital International (MSCI) Inc. has announced the inclusion of the National Bank of Pakistan (NBP) in its MSCI Frontier Market Index following the May 2024 index review.

No changes were made to the MSCI Small Cap Index for Pakistan. The adjustments will be effective from May 31, 2024.

With this update, Pakistan now has 21 constituents in the MSCI Standard Index, including Hub Power Company Limited, United Bank Limited, Lucky Cement Limited, Engro Corporation, MCB Bank Limited, Habib Bank Limited, Engro Fertilizers Limited, Bank AL Habib Limited, Pakistan Petroleum Limited, Oil & Gas Development Company Limited, Millat Tractors Limited, Mari Petroleum Company Limited, Fauji Fertilizer Company Limited, Systems Limited, POL, PSO, BAFL, TRG, Interloop Limited, SNGPL, and NBP.

Overall weight of Pakistan in Frontier market index with inclusion of NBP and increase in free float market cap of existing 20 constituents by ~12% is likely to increase by 30-40 basis points to 4.0-4.3%, Topline Pakistan Research said in a note.

Similarly, Pakistan weight in MSCI Small Cap Index is also likely to increase despite no addition of any scrip in the index as existing 56 constituents of Pakistan have returned 16% in USD terms since Feb 01, 2024 (last review) compared to 5% decline in MSCI Frontier market small cap index, the brokerage house said.

“We estimate Pakistan weight to increase in the range of ~50-60 bps in the small cap index to 3.4-3.5%.”

Estimations indicate potential gross inflows of $30-40 million into the Frontier Market Index, attributed to the changes in weight and the addition of NBP. These estimates are based on approximately $10 billion in assets under management (AUM) benchmarked to the MSCI FM Index, which has a free float market cap of $119 billion, the brokerage firm said.

In the last two weeks, foreign corporations have already bought shares worth $34.4 million and sold shares totaling $20.7 million in Pakistan’s market.

This activity suggests that Pakistan has already experienced a portion of the expected inflows, with the remainder anticipated to continue until the changes are implemented on June 3, 2024, read the note.

Previously, in September 2021, Pakistan was downgraded from its status as an emerging market by MSCI, over four years after being reclassified from the Frontier Markets Index.

MSCI noted at the time that while the Pakistani equity market met the market accessibility requirements for the Emerging Markets classification, it fell short in terms of size and liquidity standards.

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