PSX keeps up emerging market status

KARACHI: Pakistan Stock Exchange (PSX) has kept up its emerging market status in the semi-annual index review by Morgan Stanley Capital International (MSCI) despite being largely noncompliance with the free-float standards, taking a leeway out of the coronavirus crisis, analysts said on Wednesday.

Index provider MSCI announced changes in constituents of its global indices late on Tuesday. All the three stocks, including Oil and Gas Development Company (OGDC), MCB and HBL retained their positions in the MSCI standard index. Saad Hashmi, executive director at BMA Capital said the decision was based on the MSCI’s index continuity rules with alone OGDCL meeting the full market capitalisation criteria.

“The situation is extraordinary,” Hashmi said. “They (MSCI) might have factored in the pandemic ubiquity and its global economic fallouts… subjective criteria were followed.”

In the past, MSCI also suggested of invoking the rule. The index continuity rule would be applied if anyone of the existing three stocks falls below the two-third requirement of full market capitalisation, it said.

Without considering the corona ramifications, the market was earlier expecting the country to come under scrutiny in the review for a potential downgrade from emerging markets to frontier markets, with its weight estimated at 0.05 percent. In the latest semi-annual review, the country’s weight in MSCI EM (emerging market) main index is estimated at 0.026 percent. MSCI deleted two securities – Sui Northern Gas Pipelines and Nishat Mills – from MSCI EM small cap index. MSCI added two securities – Pakistan Petroleum and Mari Petroleum – in MSCI EM small cap index. The decision would be effective from Jun 1, 2020.

The pandemic wreaked havoc with many countries around the word. Decisive actions mitigated its health and economic implications. Mixed communication created uncertainty in Pakistan. Government decided to ease two-month long lockdown imposed to prevent the local transmission of the virus. Economic activities were almost stopped due to lockdown. In May last year, the country also saved its skin from a potential downgrade to frontier from emerging markets despite odds. MSCI reclassified the country to emerging market index in June 2017 after keeping it on frontier markets for nine years and that was expected to attract $300 to 500 million foreign inflows from the funds tracking the index.

It was expected that the country might be excluded from the MSCI EM index if its blue-chip stocks continued to deviate from the required free-float standards.

“(There is) no threat of downward revision in frontier markets till June 20,” Tahir Abbas, head of Research at Arif Habib Limited said. Hashmi said the economic fundamentals were giving positive vibes prior to the virus outbreak. “The present situation is not under control of anyone,” he said. “Things will get normal and there will be fast recovery then.”