The Morgan Stanley Capital International (MSCI) will announce the results of its consultation with global investors for potentially making Pakistan a part of its Frontier Market (FM) 100 index and FM 15 percent Country Capped index, developing an outlook for foreign investment flows into the country.

The result of the consultation along with the MSCI Quarterly Index Review is scheduled to be announced on Wednesday (tomorrow). The decision would come into effect from May 2022 onward.

Foreign investors, that track the MSCI FM 100 index, are managing funds in the range of $2-2.5 billion.

“We can expect foreign inflows in the range of $75-95 million in May 2022, while the active flows could materialise before May 2022,” Arif Habib Limited Head of Research Tahir Abbas projected.

“Pakistan’s weight is expected at 3.64 percent in the MSCI FM 100 index.”

Earlier, Pakistan Stock Exchange (PSX) was downgraded to MSCI FM from the Emerging Market (EM) index in September 2021, following market capitalisation (share prices) of companies listed at the bourse fell below the required level of MSCI EM and failed to rebound for quite a long time.

PSX was made part of the MSCI FM index with three securities namely Lucky Cement, Habib Bank Limited and MCB Bank in September 2021.

Besides, another 17 companies from PSX made their way to Pakistan standalone index among MSCI FM index at the time. “We do not expect any major deletions from the main frontier market index (from the three securities in quarterly index review), however, we believe that Oil and Gas Development Company can become part of the main index,” Topline Research analyst Umair Naseer added.

In its semi-annual review in November 2021, MSCI assigned Pakistan a weight of 1.25 percent in the FM index.

“We anticipate Pakistan’s weight to remain more or less the same in the upcoming quarterly index review,” he said.

“As per our workings, a total of 12 constituents from Pakistan are expected to be added to the MSCI FM 100 index,” Abbas said.

“These companies include Lucky Cement, Hub Power, Engro Corporation, Habib Bank, United Bank, MCB Bank, Fauji Fertiliser, Systems Limited, Mari Petroleum, Engro Fertilisers and Pakistan Petroleum with a cumulative weight of 3.64% in the index,” he added.

“The highest weighted constituent will be Lucky Cement (weightage of 0.46%), while the lowest weighted company will be Pakistan Petroleum Limited (weight: 0.22%).”

He reiterated that barring Vietnam, the fundamentals of the KSE-100 index are relatively stronger than those of the peer markets (with a higher weight), with the index valuations at very enticing levels.

Overall dynamics of the KSE-100 index are also comparatively stronger than the peer markets with a higher weight such as Kazakhstan, Kenya and Bangladesh.

METHODOLOGY: As per MSCI FM 100 index methodology, the eligibility criteria for any security requires that it must not be subject to a limited investability factor. It should have ATVR (average liquidity market) over 10 percent for the last 12 months and should have started trading at least two months prior to the index review.

In order to check the minimum free float requirement for MSCI FM 100 index, all the securities’ free float market cap will first have to be sorted in descending order. Thereafter, mark the security at which free float coverage becomes 90% of the total.

This level will be defined as the minimum free float adjusted market cap. Running the exercise for MSCI Pakistan IMI, the minimum free float requirement comes out to be $201 million.

All securities (between 85 to 115 in total) meeting the minimum free float adjusted market capitalisation will be included in the eligible universe.


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