Morgan Stanley Capital International Inc (MSCI), a leading provider of benchmark indices and risk management analytical products, has maintained Pakistan's classification in Frontier Market Index. According to changes announced in MSCI November 2009 Semi-Annual Index Review one addition and one deletion was announced as Engro Chemical has replaced NIB Bank in the MSCI Frontier Market Index.
As per the announced changes, Pakistan's weight in the index however inched up to 3.4 percent from 3.3 percent earlier. All changes would be affective from the close of markets on November 30, 2009. It may be recalled that MSCI Pakistan Index was removed from the MSCI Emerging Markets Index as of December 31, 2008, in the wake of persistent deterioration of inevitability conditions following the imposition of the price floor rule at the Karachi Stock Exchange (KSE).
However, Pakistan regained its MSCI membership in Semi-Annual Review of May 2009 but was classified into Frontier Market Index - one notch down from its earlier representation in Emerging Market Index.
"Due to the absence of any pre-revision discussion of Pakistan authorities for upgrading into Emerging Markets, we were not expecting an upgrade for Pakistan into MSCI EM Index", Faraz Farooq, Head of Research at First Capital Equities said.
"The next semi-annual rebalancing, due in May 2010, could be a key event for Pakistan market amid hopes of a potential upgrade into Emerging Market Index, which we believe is more dependent on how the authorities pitch the case", he added.
He said changes in country representation and weightages have direct repercussion for the flow of foreign investments especially in the emerging and frontier markets because many offshore funds benchmark their country-wise investment quotas by closely following MSCI indices.
With Pakistan market regaining its foothold on the radar of offshore funds, changes in constituents for MSCI Pakistan Index has gained significance in the recent times. As per MSCI announcement, Pakistan will continue to be classified into Frontier Market Index.
There is one addition and one deletion in MSCI Pakistan Index - Engro Chemicals has replaced NIB. Thus on net basis, total number of companies in MSCI Pakistan Index remains unchanged at 14. Other Pakistani stocks in MSCI FM Index includes, OGDC, MCB, HBL, FFC, PSO, PPL, NBP, UBL, PTCL, POL, JSCL, Hubco and Kapco.
Overall, there are nine additions to and 18 deletions from the MSCI Frontier Markets Indices. Moreover, MSCI would introduce a new stand-alone country index for Bangladesh (5 securities added) as part of this November 2009 Semi-Annual Index Review.
Imtiaz Gadar, an analyst at KASB Securities said that in line with expectations Pakistan continues to be part of the MSCI Frontier Market Index with the same number of stocks. There was only one change, as NIB Bank made way for Engro Chemical in the latest review, he added.
He said that Pakistan's weight in the index has inched up to 3.4 percent from 3.3 percent earlier. The next semi-annual review will be in May 2010. However, news flow regarding any consultation with investors on potential upgrade to MSCI Emerging Market will a leading indicator to watch out for, he concluded.