The leading provider of international investment decision support tools – MSCI has reclassified its Pakistan Index to the higher status of ‘Emerging Markets’. MSCI is expected to announce this decision at the “Semi-Annual Index Review in May 2017”. The decision will upgrade Pakistan from the stature of ‘Frontier Markets’ to ‘Emerging Markets’ and is expected to generate inflows of global portfolio investment, amounting to $475 million by the middle of 2017. This was stated by EFG Hermes – an Egypt-based investment bank.
The ‘All Pakistan Business Forum’ (APBF) has lauded this positive development and congratulated the nation, for ensuring that Pakistan’s economic output is rising at a healthy pace. Global institutional investors use different MSCI indices – such as frontier, emerging, China and US markets – to create balanced portfolios to generate maximum returns while keeping in view their overall risk appetite. Emerging markets attract far more funds than frontier markets.
The President of APBF – Mr. Ibrahim Qureshi stated that: Over the past few years, economic dynamism in the global economy has gradually been shifting—from advanced economies to emerging markets. Today, the emerging economies comprise of 85 percent of the world’s population, while contributing almost 60 percent of global GDP. While the global recovery has been subdued, emerging economies have contributed more than 80 percent of global growth since the crisis. In the current scenario, Pakistan’s inclusion into the Emerging markets is a tremendous achievement. It will create many new opportunities, despite the challenging environment.”
MSCI communicates its conclusions, based on discussions with the international investment community, on a list of markets under review every June. MSCI announced last year that Pakistan was on its list for possible reclassification in view of improvements in transparency and liquidity.
Although the actual reclassification of the index will follow next year, global investors tend to start factoring in the reclassification ahead of the actual change, which prompts massive inflows of global funds in the case of a favorable decision. The benchmark index of the Pakistan Stock Exchange has already gained 15% this year, making it the best performer in Asia. “The gauge has climbed 4.2% this month, compared with a 0.4% fall in the MSCI Emerging Markets Index.”
Pakistan was part of the MSCI Emerging Markets Index between 1994 and 2008. However, the temporary closure of the Pakistan Stock Exchange in 2008 led MSCI to remove it from the index and classify it as a “standalone country index”. MSCI made Pakistan a part of the Frontier Markets Index in May 2009 and it has remained as such since then.