Daily Times

Pakistan has been reclassified to a frontier market by index provider MSCI Inc., four years after it was upgraded to an emerging market.

According to a statement from MSCI, “Although 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. More specifically, index continuity rules, as described in section 2.4 of the MSCI Global Investable Market Indexes Methodology, have been applied since the November 2018 Semi-Annual Index Review to maintain the required three constituents in the MSCI Pakistan Index. Since the November 2019 SAIR, there have been no securities in the MSCI Pakistan equity universe that meet the Emerging Markets Size and Liquidity criteria within the MSCI Market Classification Framework. ”

MSCI says the suggestion will be adopted with the November semiannual index review.

After being promoted to an emerging market in 2017, Pakistan began to slip below the MSCI’s size and liquidity standards, prompting the decision. The benchmark KSE-100 Index of the South Asian nation climbed to a new high in the run-up to the upgrade but quickly fell into a bear market afterward.

Foreigners were on a selling spree after a corruption crisis involving then-Prime Minister Nawaz Sharif. Since the upgrading, foreign investors have sold shares worth more than $1 billion. The KSE-100 index is down 12% from its all-time high and was little changed in Karachi at 10:05 a.m. local time.

As part of its May review, MSCI also opened a consultation on the prospective inclusion of Pakistan in the MSCI Frontier Markets 100 Index and the MSCI Frontier Markets 15% Country Capped Index.

Pakistan’s stock market has plummeted since it was reclassified as an emerging market.

According to Bloomberg data, Pakistan has a weight of 0.02 percent in the MSCI Emerging Markets Index. Lucky Cement Ltd., MCB Bank Ltd., and Habib Bank Ltd. make up the MSCI Pakistan Index. According to MSCI, none of them have met the size or liquidity criterion since November 2019.

According to an MSCI simulation, the country’s stocks will have a larger representation in the MSCI Frontier Markets Index, with a weight of 1.9 percent. According to Mattias Martinsson, a chief investment officer of Tundra Fonder AB, the adjustment will see funds grow their Pakistan holdings to 10% within a year.