Pakistan reclassified to Frontier Markets

MSCI has reclassified Pakistan to Frontier Markets from Emerging Markets, as previously announced.

According to a report by Ismail Iqbal Securities, the number of securities in the main index will be 3 (HBL, MCB, LUCK), lower than 4 in the simulation as OGDC has been excluded. Resultantly, Pakistan’s weight is now calculated at 1.25% as against 2.3% in the simulation.

Overall Pakistan will have 17 securities (3 in main index and 14 in small cap), lower than 23 in the simulation. Apart from OGDC’s exclusion from the main index, 14 securities will now be part of small cap index as against 19 in the simulation. PKGS, NBP, ABOT, BAHL, and INDU could not make it to the small cap list.

SYS is the only stock which was not part of MSCI EM but has made it to the MSCI FM list, which could attract some flows; albeit SYS is not a new stock for foreign investors.

Next in-line would be MSCI’s decision on consultation on potential inclusion of Pakistan to the MSCI FM100 index and the MSCI Frontier Markets 15% Country Capped Index. This would be important from attracting flows of passive funds.

The result of this consultation will be announced along with February 2022 Quarterly review and will be made part of May 2022 Semi-Annual Index Review (SAIR).

The brokerage house believes the foreign selling has remained a continuous phenomenon and would not be a major threat post effective date of exit, albeit some pressure in large names LUCK, HBL, MCB may be witnessed, which would be a good time to build positions in these names.

Local liquidity would continue to drive the market, while resumption of IMF program and monetary policy announcements would be more important for market direction.

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