KARACHI: Index provider Morgan Stanley Capital International (MSCI) has announced Thursday that Pakistan will be eligible for inclusion in its Frontier Markets 100 Index and the Frontier Markets 15% Country Capped Index in May 2022 as part of its Semi-Annual Index Review (SAIR), The News reported.
“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."
MSCI initiated discussions with international investors in September 2021 regarding Pakistan's potential inclusion in the FM 100 Index. MSCI has not yet announced the firms that will be included in the FM 100 index.
However, the market expects Lucky Cement, Hub Power Company, Engro Corporation, HBL, UBL, MCB, Fauji Fertiliser, Systems Limited, Mari Petroleum, Engro Fertilisers, and Pakistan Petroleum Limited to make the MSCI FM 100 Index.
Lucky Cement has the highest weighted constituent (0.46%), while Pakistan Petroleum has the lowest weighted constituent (0.22%).
Analysts anticipate foreign inflows of $75-95 million in May 2022 as a result of MSCI's review, "while active flows may materialise prior to May 2022."
Pakistan is estimated to have a 3.64% weighting in the MSCI FM 100 Index, brokerage Arif Habib Limited said in a market note.
MSCI downgraded Pakistan to a frontier market in September, four years after it was upgraded 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.
However, the decision increased Pakistan's weighting in the MSCI Frontier Markets Index to 2.3%. Additionally, funds increased their Pakistan holdings to 10% within a year.
The MSCI Pakistan Index has a weight of 1.28% when compared to the other three components of the MSCI Frontier Markets Index.
The MSCI Pakistan Standalone Index also remains unchanged, with all 17 stocks previously added to the Frontier Market Index from the Pakistan Stock Exchange (PSX) maintaining their positions.
According to the MSCI statement, the index has been expanded to include only LOC Holdings of Sri Lanka.
The analysts are of the view that this could result in new inflows into the country, which is currently grappling with a ballooning current account deficit as a result of a high import bill and rapidly depleting foreign exchange reserves.
"This may result in some/modest foreign inflows. However, local investors will continue to drive the market," an analyst stated.