Pakistan downgraded from its status as an emerging market after four years

Pakistan downgraded from its status as an emerging market four years after its ranking was raised by Morgan Stanley Capital International (MSCI).

According to MSCI, “Although the Pakistani equity market meets the conditions for market accessibility under the classification structure for emerging markets, it no longer matches the standards for size and liquidity.” 

The decision has been expected since Pakistan began falling below the MSCI’s standards in terms of size and liquidity. The country’s benchmark KSE-100 Index surged to a record in the run-up to the upgrade but slumped into a bear market soon after.

A corruption scandal of the former Prime Minister, Nawaz Sharif, sent foreigners on a selling spree. Following this, overseas investors sold shares worth more than $1 billion. The KSE-100 is down by 12% from its record high.

Speaking about the recent development, a New Zealand-based analyst, Brian Freitas, said, “After Pakistan’s inclination, passive investors will have to sell approximately $100 million worth of shares in total when the change becomes effective.”

As per the data compiled by Bloomberg, “Pakistan weights 0.02% in the MSCI Emerging Markets Index.” 

The MSCI Pakistan Index comprises Lucky Cement Ltd., MCB Bank Ltd., and Habib Bank Ltd. Since November 2019, none of them have met the size or liquidity criteria, the MSCI report revealed.

However, according to an MSCI simulation based on data until April, Pakistan will have a more significant presence on the MSCI Frontier Markets Index with a weight of 2.3%. 

A chief investment manager of Tundra Fonder AB, Mattias Martinsson, said, “Within a year, the change will see stocks increase their Pakistan holding to 10%.”

Martinsson added, “Frontier market “investors have coveted for liquidity and more classic frontier stories. They will find both in Pakistan.”

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