MSCI changes its constituent list of Pakistan stocks

KARACHI: Index provider MSCI Inc has made some changes in its constituent list while traders are hopeful that frontier market index will bring higher funds for Pakistan.

MSCI in its semi-annual index review announced the addition of Oil & Gas Development Company (OGDC) and the deletion of Habib Bank Limited (HBL) from the constituent list of the MSCI frontier market index (FM).

The MSCI frontier markets index captures large and midcap representation across 28 FM countries. The index includes 91 constituents, covering about 85 percent of the free float-adjusted market capitalisation in each country.

Pakistan has an estimated weight of 1 percent in MSCI FM index.

Within MSCI small-cap index, Engro Polymer Chemicals (EPCL), HBL and Indus Motors Company Limited (INDU) have been added.

A Topline Securities report said that MSCI has not yet disclosed details on Pakistan’s inclusion in MSCI FM 100 and MSCI FM 15 percent country capped index, which may be shared at a later stage.

“To recall, MSCI in its last quarterly review in Feb 2022 had notified that Pakistan is now eligible for inclusion in MSCI FM100 and MSCI FM 15 percent country capped index,” said Umair Naseer at Topline Research.

According to details, MSCI keeps three Pakistan securities in the standard index that included Lucky Cement, MCB Bank and OGDC. The small cap index now has 17 companies; HBL, EPCL, INDU, Bank Alfalah, Engro Corporation, Engro Fertilizers Limited, Fauji Fertilizer Company, Hubco, Mari Petroleum, Millat Tractors, Pakistan Oilfields Limited, Pakistan Petroleum, Pakistan State Oil, SEARL, SYS, TRG & UBL effective 31 May 2022.

After staying four years in the emerging market, index provider MSCI Inc had downgraded Pakistan to a frontier market last year.

According to the MSCI, Pakistani market no longer meets the standards for size and liquidity despite meeting the requirements for market accessibility under the classification framework for emerging markets.

Analysts said that size of Pakistani market has remained an issue as political and economic crises resulted in foreign fund flight from Pakistan and low volumes.

Zafar Moti, a former director of PSX, said, “We had remained in the frontier market, then volumes had improved and went to emerging markets. Then volumes dropped and moved back to the frontier market.”

As compared to frontier markets, fund managers of the emerging market hold more investment amounts and they move around more funds.

Though the frontier market is smaller by one-tenth to the emerging market index, the portion of funds to be diverted to Pakistan increases. “Percentage-wise if we were 0.2 percent in emerging markets, however, here we would be in full points.”

In the Index, the inclusion of OGDC in place of HBL depends on the criteria and weightage of the stock. “Overall, it will not have much impact on the market,” he said. However, “If our market performs better in the frontier market, we will get highest funds receiver stocks in the frontier market index,” Moti added.