MSCI upgrades Pakistan’s weight in index

KARACHI: The Morgan Stanley Capital International (MSCI) announced outcome of its semi-annual review whereby Pakistan now has a weight of 0.023 percent as compared to 0.016 percent previously.

Additionally, Pakistan’s weight in the small cap index has been revised to 0.379 percent. Pertinently, the changes will become effective from 28th May 2021.

Lucky Cement has been added to the MSCI Pakistan Index under MSCI Global Standard Indexes while Oil and Gas Development Company has been removed from it. The new constituents are MCB Bank, Habib Bank and Lucky Cement.

Under the MSCI Global Small Cap Indexes, TRG Pakistan has been added while Indus Motors, Lucky Cement, National Bank of Pakistan and Packages Limited have been removed. “We estimate inflows in the LUCK to the tune of $39.65 million (6.89 million shares at last closing price) while we estimate outflows in OGDC to clock in at $16.69 million (27.48 million shares at last closing),” an analyst at Arif Habib Limited said.

“On the small cap flows, we believe that funds invested in LUCK under small cap might not offload LUCK while other estimated outflows are NBP, INDU ($4 million; 0.55 million shares) and PKGS ($3.46 million; 1.09 million shares). On the inflow side, $17.46 million inflow is expected in TRG (16.08 million shares at last closing).”

During the last update in October 2020, the markets were still recovering from the pandemic, and would have been an unlikely proxy for the review to make concrete changes. The market has now consolidated largely from V-shaped economic recovery and there is enough warranties over assessment through the investability criteria.

As per the April 2021 methodology update, the MSCI Standard, MSCI Small Cap and MSCI Equity Indexes have transitioned into global investable market indexes methodology. The uniform criteria accounts for a broad-based classification mechanism.

Based on index continuity rules, there has been a high probability that Pakistan is shifted to a monitoring list for a possible downgrade. This will change the tone for future market direction KSE-100 index has performed better in frontier markets.

Pakistan has been part of MSCI Emerging Market owing to the index continuity rule since May 2019.