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Pakistan included in MSCI Frontier Market Index

By Tanveer Ahnmed

KARACHI: Pakistan has been included in Morgan Stanley Capital International (MSCI) Frontier Market Index with the inclusion of twelve Pakistani companies in it.

Morgan Stanley Capital International (MSCI), a leading provider of benchmark indices, announced the results of its May 2009 Semi Annual Index Review for the MSCI Equity Indices Thursday.

The Pakistan index – first inducted in the MSCI Index series in February 1994 was removed from Emerging Market (EM) Index in December 2008 mainly due to restrictions on normal trading by placing the floor in August last year.

“Removal of the price floor in mid December and subsequent smooth functioning of the equity markets propelled Pakistan’s inclusion in the Frontier Index,” believe the analysts Muzzamal Aslam and Farhan Rizvi at JS Research.

They also believed that Pakistan would occupy a relatively higher representation in the MSCI Frontier Index (2.0-2.5 percent) as against only 0.14 percent in the MSCI EM Index prior to its exclusion.

The Pakistani stocks that have been included in MSCI are MCB, NBP, UBL, NIB, OGDC, POL, PSO, KAPCO, HUBCO, FFC, JSCL & PTC having the combined weight of 45 percent in KSE-100 index, the benchmark of Karachi Stock Exchange (KSE).

The inclusion of Pakistan in the MSCI Frontier Index bodes well for the local equity market where foreigners still hold 19 percent of the total free float.

Markets players commenting on the latest development hoped that it would subside the selling pressure from foreign institutes.

Total foreign net selling since December 15 has been recorded at $291million and only on Wednesday, local stock market witnessed net foreign outflow worth $11.41 million that was the third largest after the net sale of $15.91 million on January 28 and the largest offload worth $23.47 million on January 2 this year.

However, despite the exodus of foreign investment, the local bourse remained buoyant even remaining out of the fold of MSCI Index due to positive corporate earnings outlook and economy, which lured the local institutions to invest in the market.

The benchmark KSE-100 index performance remains impressive and surged 23 percent since the removal of floor, highlighting the strength of local market to emerge strong in the present situation of global economic meltdown, which sent ripples in the world stock markets. Currently, foreigners hold 4.7 percent of total market capitalization and 19 percent of free float.

Stock market analysts said that Pakistan market currently trades at an attractive one year forward PE of 6.5x, a deep discount of 40 percent compared to regional markets.

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