Daily Times

KARACHI: The positive sentiments that gave bulls reign of the stock market for last three consecutive session could be sustained even after the much awaited MSCI reclassification announcement. The benchmark KSE 100 index succumbed to the profit taking which plummeted by 574 points to settle down at 51,813 level.

During the trading at the bourse 377 million shares changed hands while the trading value of the shares was recorded at Rs 23 billion.

Morgan Stanley Composite Index (MSCI) in its Semi-Annual Index Review announced Pakistan’s entry into MSCI Emerging Markets (EM) index with Pro Forma weight of 0.10% in the index (based on data as of Apr 20, 2017 as per MSCI announcement, dated May 15, 2017), below expectations. This inclusion will be effective from Jun 1, 2017.

Pakistan Stock Exchange (PSX) has been upgraded to MSCI Emerging Markets status, after 9 years. The move will enable global investors to track the index with around $1.5-1.7 trillion for investment including around $300 billion passive funds. Now Pakistan will be part of 8 other countries like China, Korea, Taiwan, India and Malaysia etc in Asian EM.

“We estimate that Pakistan’s exclusion from MSCI FM would lead to passive outflows of around $100 million ($17-20 billion of funds track MSCI FM; 3-5% funds are passive”, analysts at Topline Securities predicted.

There are 6 stocks that are part of MSCI EM Index including one large cap. Oil & Gas Development Company (OGDC), and five mid-caps; Habib Bank, United Bank, Lucky Cement, MCB Bank, and Engro Corporation. The simulated MSCI Pakistan Investible Market Index (IMI) has a total of 33 stocks. Amongst 6 MSCI EM stocks, highest weight will be of HBL (based on free-float market cap.), followed by UBL, LUCK, ENGRO, OGDC and MCB, report by Topline Securities says.

Pakistan was expelled back in 2008 when government closed stock market due to liquidity crunch amid the global financial crisis. In May 2009, Pakistan was shifted from standalone to Frontier Markets (FM) Index. In Jun 2016, MSCI announced to reclassify Pakistan from FM to EM coinciding with the May 2017 Semi-Annual Index Review.

It may be recalled that Pakistan’s return to the MSCI EM created much excitement among the investors which helped the KSE-100 to increase 8.6%. According to market players the gains would have been much more but political uncertainty over the Panama case restricted the gains. Since April 20, the day when Supreme Court announced verdict, KSE-100 has increased over 10% to over 52, 000 all time high level.

Analysts expect that stock market would enter a consolidation phase post inclusion, with fundamentals coming back in to the foray. However, there is no change in the stance of analysts about the target of KSE-100 for current fiscal year which would close the year around 56,000 level.