Pakistan upgraded to MSCI Emerging Markets Index
Wasim Khan - June 15, 2016
The MSCI (Morgan Stanley Capital International) has announced inclusion of Pakistan in the category of “Emerging Markets”. Pakistan was previously downgraded to “frontier” status by MSCI in 2008 when the Karachi Stock Exchange set an index floor to halt a sell-off in the wake of then ruler Pervez Musharraf leaving office to avoid impeachment.
Present government efforts over the past three years in prioritizing three core issues: security, power generation, and economy have helped stabilize the country. In January 2016, the government merged three stock exchanges of Karachi, Lahore and Islamabad into one stock exchange called Pakistan Stock Exchange.
Last year, UAE and Qatar stock markets were upgraded to EM Index and they saw arrival of $400 million each in next six months of induction. Pakistan is not expected to receive higher amounts as such, due to security and economic challenges facing the country. Nevertheless, a sizable investment is expected. According to JPMorgan Chase & Co the market could attract about $220 million in inflows following MSCI’s decision. BMA Capital Management Ltd., projects Pakistan to attract $300 million to $400 million in the first year while EFG Hermes Holding SAE believes that an upgrade could attract around $475 million by mid-2017.
Pakistan stocks are expected to have a potential weight of 0.19 percent only in the emerging market, second to the lowest 0.18 percent weight of Czech Republic. China has the largest weight of 25.41 percent in EM Index while India is the fourth largest heavyweight in the EM with 9.03 percent.
Pakistan’s upgrade from ‘Frontier Markets”, which is a market of a couple billion dollars only to “Emerging Markets”, which is a market of over a trillion dollars, is certainly a good news for the country.