Reclassification: MSCI adds three Pakistani securities to Frontier Markets Index

Morgan Stanley Capital International (MSCI) Inc, a global provider of equity, fixed income, hedge fund and stock market indexes, has transferred three Pakistani stocks to its MSCI Frontier Markets Index, a change that would take place as of the close of November 30, 2021.

The development comes as Pakistan was downgraded from an emerging to the frontier markets index, the announcement of which was made earlier.

Back to the 'smaller pond': MSCI to downgrade Pakistan to Frontier Market

“As previously announced, the MSCI Pakistan Indexes will be reclassified from Emerging Markets to Frontier Markets in one step coinciding with this Index Review. Three Pakistani securities will be added to the MSCI Frontier Markets Index at an aggregate weight of 1.25%,” read a statement, released late on Thursday.

As per details, three Pakistani stocks, namely Habib Bank, Lucky Cement and MCB Bank, have been added to the MSCI Frontier Markets Indexes List following their removal from MSCI Global Standard Indexes.

Furthermore, 14 Pakistani companies have been added to MSCI Pakistan Index Frontier Markets small-cap indexes.

They are Bank Alfalah, Engro Corporation, Engro Fertilizers, Fauji Fertilizer Co, Hub-Power Co, Mari Petroleum, Millat Tractors, Pakistan Oilfields, Pakistan Petroleum, Pakistan State Oil Co, Searle Pakistan, Systems, TRG Pakistan and United Bank.

Earlier, in September, Pakistan was downgraded from its status as an emerging market, a little over four years after it was reclassified from the Frontier Markets (FM) Index by MSCI.

The MSCI said that while the Pakistani equity market meets the requirements for market accessibility under the classification framework for Emerging Markets, it no longer meets the standards for size and liquidity.

During the time Pakistan stayed in the EM Index, the market witnessed net foreign outflows of $1.4 billion, and increased a mere 1.4% against 26.2% return offered by the MSCI EM index, said AKD Securities.

“The weak performance was mostly attributable to idiosyncratic country risks and classification of other better positioned markets such as that of KSA, compressed weight to 0.02% (latest) from 0.1% when Pakistan was initially classified … foreign corporations’ net sell with value sectors falling out of favour,” stated the report.