The Morgan Stanley Capital International (MSCI) has announced November 2017 Semi-Annual Review, whereby Pakistan now has a weight of 0.081 percent as compared to 0.14 percent back in May 2017. Additionally, Pakistan's weight in the small-cap index has been revised to 0.94 percent. There has been one downgradation from the MSCI main index as ENGRO has been removed and moved to small cap. Moreover, three companies including SHEL, FEROZ and PSMC have been deleted from the MSCI small-cap index.
Pertinently, the said changes will become effective from November 30, 2017. Five companies have maintained their position in the MSCI EM Index. These include one large-cap scrip (OGDC) and four mid-caps namely HBL, UBL, MCB, and LUCK. Post review and inclusion of ENGRO into small cap, MSCI small cap index constituents were ENGRO, BAFL, EFERT, FCCL, FFBL, FFC, HCAR, HUBC, IGIIL, INDU, ISL, DGKC, KAPCO, MLCF, MTL, NBP, NRL, NML, PKGS, PAEL, POL, PSO, SEARL, SNGP and THALL.
ENGRO has been excluded from the MSCI Pakistan index amid total market capitalization below $1.5 billion and free float market capitalization below $750 million. Exclusion of ENGRO from MSCI Pakistan index may result in foreign outflows from the stock and we might see some selling pressure keeping the stock performance in check. The local equity bourse has posted drop of 18.5 percent since its inclusion in the MSCI EM market. "We highlight the performance delivered by MSCI EM large/mid/small caps, eroding a total of 7,016 points (contributing 75 percent to cumulative decline) from the KSE-100 index," an analyst at Arif Habib Limited said. Contribution to the downside was led by HBL (1,419 points), LUCK (856 points), UBL (533 points), ENGRO (423 points), OGDC (168 points) and MCB (32 points).
This plunge was attributable to foreign out-flows, political disturbances and external account challenges. Against expectations, foreign flows have remained below par. Since reclassification, the equity bourse has exhibited net foreign outflows of $178 million (Gross Buy of $2,011 million and gross sell of $2,189 million).
Pakistan's weightage has declined to 0.081 percent due to 18.5 percent decline of the KSE-100 Index, whereas MSCI EM Index has recorded a substantial rise of 11.7 percent. "We view the market to remain rangebound in the near term amid disturbance and uncertainty on the political front," the analyst said. Moreover, MSCI EM market index rebalancing during the month is likely to dictate foreign flows. "In the longer run, we continue to reiterate our robust outlook supported by expected GDP growth of 5.5 percent in FY18E, materialization of power projects which will curb power outages in the country and soft inflation outlook (AHL estimate of 4.3 percent to 4.5 percent compared to government's target of 6.0 percent)," he said.
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