MSCI shears Pakistan’s stocks weightage to 0.14pc on recent beating

KARACHI: Index provider Morgan Stanley Capital International (MSCI) slashed Pakistan’s weightage to 0.081 percent from 0.14 percent in its emerging market index in line with the market expectations on falling stocks, analysts said on Tuesday. 

But the analysts don’t see the impact of reduction on foreign inflows into Pakistan Stock Exchange (PSX), which recovered its emerging market status by MSCI in May.

MSCI, in its semi       annual index review for its equity indexes on late Monday, added Pakistan’s one security and deleted three securities in MSCI Global Cap Indexes and removed one from its Global Standard Indexes, according to an announcement.  All changes will be implemented from December 1.

Analysts said the reduction was broadly expected. 

“As such, we expect market sentiment to continue being dictated by the local front where current political and economic uncertainty is likely to keep market under pressure,” First Capital Equities said in a report. 

Analysts said the rebalancing is likely to dictate foreign flows. But, growth projection of 5.5 percent, completion of power projects and soft inflation keep outlook bright in the long-run.

In May, MSCI reclassified the country from Frontier Markets (FM) to Emerging Market (EM) Index, effective from June 1. 

The market fell 18.5 percent since the reclassification, while MSCI EM (Asia) Index has been up 12 percent during the period. The plunge was attributable to foreign outflows, political disturbances and external account challenges.

Foreign flows remained below par with net foreign outflows at $178 million since the upgrade. Engro was excluded from the MSCI Pakistan index because of its market capitalisation below $1.5 billion and free-float market capitalisation below $750 million.

The downgrade led to selling pressure in the stock, which ended down five percent on lower lock and eroded 85 points from the benchmark index. Only 0.66 million Engro shares traded on Tuesday.

“Exclusion of Engro from MSCI Pakistan index may result in foreign outflows from the stock and we might see some selling pressure keeping the stock performance in check,” Samiullah Tariq, director research at Arif Haib Limited, said.

Taurus Securities, in a report, said MSCI reclassified Engro from EM standard index to small cap index and “consequently we expect Pakistan’s weight in the small cap index also likely to be revised downward to 0.90 percent, while we also await release of the official weights list.”

Analysts said Engro’s downgrade surprised the market, which was prepared for Lucky Cement’s removal instead.

Analyst Syed Atif Zafar at JS Global Capital a relief rally in Lucky Cement couldn’t be ruled out as the Luck remained in the Index.  “There were expectations for the inclusion of Pakistan Petroleum, which also did not materialise,” Zafar added.

One large cap Oil and Gas Development Company and four mid-caps, namely Habib Bank, United Bank, MCB Bank and Lucky Cement maintained their positions in the MSCI EM Index. Other MSCI small cap index’s constituents include Bank Al-Falah, Engro Fertilizer, Fauji Cement, Fauji Fertilizer Bin Qasim, Fauji Fertilizer, Honda Cars, Hub Power, IGI Insurance, Indus Motor, International Steel, DG Khan Cement, Kot Addu Power, Maple Leaf Cement, Millat Tractors, National Bank, National Refinery, Nishat Mills, Packages Limited, Pak Electron, Pakistan Oilfields, Pakistan State Oil, Searl Company, Sui northern Gas and Thal Limited. Ferozsons Laboratories, Pak Suzuki Motor and Shell Pakistan have been removed from the MSCI Global Small Cap Index.