· Pakistan is set to be classified under Frontier Markets from Emerging Markets on Nov 11’21 with the change coming in effect by Nov-end. This should draw curtains on the country’s 4.5yr long ride in EM index — the second in Pakistan’s market history — during which the market witnessed net foreign outflows of US$1.4bn and performed 1.4% during this period vs 26.2% of the MSCI EM index.
· Together with the current review, MSCI shall open consultation for classifying Pakistan in MSCI FM 100 index and MSCI Frontier Markets 15% Country Capped Index, with the possible announcement in Feb’22.
· Pakistan is expected to fetch an indicative weight of 1.9% in FM as per MSCI release, which is significantly lower than ~9% when the country exited FM back in 2017. While Argentina is downgraded from MSCI EM as a standalone index, potential reclassification to FM could further compress Pakistan’s weight in the index.
· The transition is unlikely to alter market’s participation dynamics materially, and macro factors would continue to dominate market direction where possible resumption of IMF program with Govt. addressing structural issues, ease-off in commodity prices (Brent at its one month low, coal prices coming off 39% from peak), and relative calm on the political front to stretch current rally at the bourse (market +9.25% from recent low).
Courtesy – AKD Research