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% Country Capped index.
It will develop an outlook for foreign investment flows into the country.
The MSCI has scheduled the announcement result of the consultation along with MSCI Quarterly Index Review on Feb 9, 2022. 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.
Arif Habib Limited Head of Research Tahir Abbas projected that:
“We can expect foreign inflows in the range of $75-95 million in May 2022. While the active flows could materialise before May 2022. MSCI has expected weight of Pakistan Inde at 3.64% in the MSCI FM 100 index.”
Earlier, Pakistan Stock Exchange (PSX) downgraded to MSCI FM from Emerging Market (EM) index in September 2021. It was because market capitalisation of companies listed at the bourse fell below the required level of MSCI EM. And It failed to rebound for quite a long time.
The Morgan Stanley FM index made PSX a part of it with 3 securities. It includes Lucky Cement, Habib Bank Limited and MCB Bank in September 2021. Another 17 companies from PSX made their way to Pakistan standalone index among Morgan Stanley FM index at the time.
Topline Research analyst Umair Naseer said:
“We do not expect any major deletions from the main frontier market index. However, we believe that Oil and Gas Development Company can become part of the main index.”
In its semi-annual review in November 2021, MSCI assigned Pakistan a weight of 1.25% in 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, MSCI FM 100 Index will add a total of 12 constituents from Pakistan,” 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.
“Lucky Cement will have the highest weighted constituent at the weightage of 0.46%. While Pakistan Petroleum Limited will have the lowest weighted company at the 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 limited investability factor. It should have ATVR (average liquidity market) over 10% 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 a descending order. Thereafter, mark the security at which free float coverage becomes 90% of the total.
This level will define as the minimum free float adjusted market cap. Running the exercise for MSCI Pakistan IMI, 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.
