Pakistan set to gain more weight in MSCI Frontier Index as market outshines peers

KARACHI: Pakistan's weight in the MSCI Frontier Market index is expected to increase in the upcoming semi-annual review announcement on Nov. 14, as the country's market capitalisation and index performance have outperformed most of its peers in the period under review, a brokerage report said on Wednesday.

The changes to the MSCI Frontier Market index will be effective from Dec. 1.

To recall, in the latest quarterly review on August 2023, 14 Pakistan stocks were moved from the MSCI Small Cap Index to the MSCI FM Standard Index, and Bank Alfalah was included in the MSCI FM Standard Index, bringing the total number of stocks in that index to 17.

The scrips in Frontier Market Standard Index include Oil and Gas Development Company, Pakistan Petroleum, Mari Petroleum, United Bank, Lucky Cement, MCB Bank, Engro Corporation, Habib Bank, Hub Power Company, Fauji Fertilizer Company, Systems Limited, Engro Fertilizers, Pakistan Oilfields, Millat Tractors, Pakistan State Oil, Bank Alfalah and The Resource Group.

Similarly, MSCI also made adjustments to the MSCI Small Cap Index by including 27 stocks, bringing the total number of constituents in the index to 41 in August 2023 review.

This has resulted in Pakistan's weight in the FM index increasing from around 0.6 percent to around 2.7 percent in August 2023.

There are total 21 countries in MSCI Frontier Market, where the top five countries are Vietnam with a share of 29.9 percent, followed by Romania 9.8 percent, Iceland 9.2 percent, Kazakhstan 7.2 percent, and Slovenia 4.8 percent.

The price cut-off set by MSCI for this semi-annual review was any one of the last 10 business days of October 2023. The review period spans six months from May to October 2023.

Since May-October 2023, Pakistan's market capitalization of stocks in MSCI FM Standard Index has increased by 15 percent, and overall market capitalisation of the Pakistan Stock Exchange has increased by 21 percent in US dollar terms.

The KSE 100 index is also up 26 percent in U.S. dollar terms in the period under review. However, the market capitalization of the top five Frontier Market countries, which account for 60 percent of the weight in the FM index, declined by 1 percent while the index is only up by 4 percent in the period under review.

"Considering above factors, we anticipate that Pakistan's weight will further increase in upcoming semi-annual index review, given the 21 percent increase in overall market cap and 26 percent in index," brokerage Topline Securities said.

"The addition of a few securities to the MSCI Standard Index cannot be ruled out. We also believe that few securities may be moved from MSCI Standard Index to MSCI Small Cap Index."

The brokerage said the likely increase in Pakistan's weight will be positive as some more foreign flows will come to the country.