MSCI to add Pakistan to frontier market 100 index in May

KARACHI: Index provider MSCI on Thursday said Pakistan will be eligible for its Frontier Markets 100 Index and the Frontier Markets 15 percent Country Capped Index in May as part of its semi-annual review.

“After the feedback received from the market participants, Pakistan will become eligible for inclusion in the MSCI Frontier Markets 100 and the MSCI Frontier Markets 15% Country Capped indexes as part of the May 2022 Semi-Annual Index Review (SAIR),” MSCI said in a statement.

"Further announcements may occur as needed."

In September 2021, the MSCI had kicked off discussions with international investors over likely inclusion of Pakistan in FM 100 Index. The MSCI is yet to announce the names of firms to be included in the FM 100 index.

However, the market expects the companies, most likely to end up in the MSCI FM 100 Index, are Lucky Cement, Hub Power Company, Engro Corporation, HBL, UBL, MCB, Fauji Fertiliser, Systems Limited, Mari Petroleum, Engro Fertilisers, and Pakistan Petroleum Limited. Lucky Cement (0.46 percent) is the highest weighted constituent, whereas Pakistan Petroleum (0.22 percent) the lowest.

Analysts said they expect foreign inflows in the range of $75-95 million in May 2022 following MSCI’s review “while the active flows could materialise before May 2022.

“Pakistan’s weight in MSCI FM 100 Index is figured at 3.64 percent,” brokerage Arif Habib Limited said in a market note.

In September last year MSCI downgraded Pakistan to a frontier market, four years after its ranking was raised to an emerging market.

“Although the Pakistani equity market meets the requirements for market accessibility under the classification framework for emerging markets, it no longer meets the standards for size and liquidity,” MSCI had then said.

The decision, however, made bigger presence of Pakistan on the MSCI Frontier Markets Index with a weight of 2.3 percent. The change also saw funds increase their Pakistan holding to 10 percent within a year.

MSCI Pakistan Index's weight with the three constituents in the MSCI Frontier Markets Index is 1.28 percent.

The MSCI Pakistan Standalone Index also remains unchanged with all the 17 stocks, inducted previously from the Pakistan Stock Exchange (PSX) to the Frontier Market Index, keeping their positions.

Only LOC Holdings of Sri Lanka has been added to the index, according to the MSCI statement. Analysts said this could spur fresh inflows into the country, currently grappling with a runaway current account deficit amid high-import-bill and depleting foreign exchange reserves. “This can attract some/limited foreign inflows. However, the market would continue to be driven by local investors,” an analyst said.