The Morgan Stanley Capital International (MSCI) announced on Wednesday to notch down Pakistan Stock Exchange (PSX) among lesser advanced economies into Frontier Markets (FM) index with effect from December 1, 2021.
“MSCI Inc. (NYSE: MSCI) announced that it will reclassify the MSCI Pakistan Indexes from Emerging Markets to Frontier Markets,” it said in a press release.
“This conclusion follows feedback received from market participants from its recent consultation. MSCI will reclassify the MSCI Pakistan Indexes from Emerging Markets to Frontier Markets in one step, coinciding with the November 2021 Semi-Annual Index Review (SAIR),” the release added.
“Based on a simulation using pro forma data as of August 31, 2021, this would lead to the inclusion of four securities in the MSCI Frontier Markets Index with an estimated index weight of 1.90 per cent.”
The statement further added that although the Pakistani equity market met the requirements for the market accessibility under the classification framework for Emerging Markets, “it no longer meets the standards for size and liquidity.”
“Starting with the November 2021 SAIR, the MSCI Pakistan Indexes will be rebalanced using size and liquidity requirements for smaller, average liquidity Frontier Markets,” it read.
The small cap of simulated MSCI Pak FM will include Pakistan Petroleum, Mari Petroleum, Engro Corporation, UBL, Fauji Fertiliser Company, Pakistan Oilfields, Pakistan State Oil, Hub Power Company, Indus Motor Company, Engro Fertiliser, TRG Pakistan, BankAl Habib, Abbott Laboratories, National Bank of Pakistan, Systems Limited, Millat Tractors, Searle, Bank AlFalah and Packages Limited.
Meanwhile, the MSCI Pak FM standard cap will most probably include Lucky Cement, Muslim Commercial Bank, Habib Bank and Oil and Gas Development Company.
Earlier in June, the MSCI — a leading provider of critical decision support tools and services for the global investment community — proposed that it will downgrade the Pakistan Stock Exchange (PSX) from EMI to FMI. The proposal came on the back of a continuous drop in share price of its listed firms for quite a long time.
Citing market experts, local media reports stated that the size of PSX might grow in FM as the domestic economy is on expansion mode for over a year now. It is expected to grow by 4.8pc in the current fiscal year 2021-22 compared to 4pc in FY21. It had contracted 0.5pc in FY20.
Pakistan registered GDP growth of nearly 4pc in the fiscal year 2020-21 (FY21), beating earlier estimates of the State Bank of Pakistan (SBP) and the International Monetary Fund (IMF).
On the other hand, it followed an economic contraction – the first in over seven decades – in the previous year as policymakers battled to control a widening current account deficit whereas the country is targeting 5pc growth in FY22.
