KARACHI: There will be no deletion of constituents in the MSCI 2020 Annual Market Classification Review to be released on Tuesday, analyst said. Announcement will be made available shortly after 10:30 pm Central European Summer Time (CEST), i.e. 1:30 am Pakistan Standard Time (PST) on June 24, 2020.
"There will be no deletion or additions of constituents, as MSCI is likely to deliberate on status of different markets," Syed Atif Zafar, Director Research and Chief Economist at Topline Securities said.
Pakistan has been part of MSCI Emerging Market (EM) owing to the Index Continuity Rule since May-2019. MSCI states that such indexes may be discontinued, if no constituents are left, in accordance with MSCI GIMI methodology.
The minimum criteria for EMs have been reduced to $1,400 million total market cap and $700 million float market cap.
All the three constituents from Pakistan (OGDC, MCB and HBL) do not meet the minimum free-float capitalization criteria of $700 million, while only OGDC meets the full market capitalization criteria of $1,400 million.
"We believe probability of a downgrade of Pakistan is low given that MSCI may keep Pakistan under Index Continuity rule taking into consideration impact of Covid-19," Atif Zafar said. In a worst case scenario, Pakistan is less likely to be imminently downgraded to FM, as MSCI is likely to involve a public consultation, before announcing any downgrade of Pakistan to FM.
The Annual Market Classification Review is based on the MSCI Market Classification Framework. The framework consists of the following criteria:
Economic development: Considers the sustainability of economic development and is only used in determining the classification of developed markets, given the wide range of development levels within emerging and frontier markets.
Size and liquidity requirements: Determines those securities that meet the minimum investability requirements of the MSCI Global Standard Indexes.
Market accessibility criteria: Aims to reflect international institutional investors' experiences of investing in a given market and includes five criteria: openness to foreign ownership, ease of capital inflows / outflows, efficiency of operational framework, availability of investment instruments and stability of the institutional framework.
In the MSCI Global Market Accessibility Review released on June 17, 2020, Pakistan's view has been changed from "+" to "-/?" on clearing and settlement (see table on next slide).
MSCI states that there is no nominee status and omnibus structures are not available. Overdraft facilities remain prohibited. There were five upgrades and three downgrades in the Emerging Markets.
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