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May 16, 2018

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MSCI marginally raises Pakistan’s weight in flagship index

KARACHI: Morgan Stanley Capital International (MSCI) slightly raised Pakistan’s weight in its flagship index to 0.080 percent in its semiannual review from 0.079 percent in November last year, which analysts termed positive with a caution that China’s inclusion might divert some foreign money.

Index provider MSCI marginally raised Pakistan’s weight, effective from June 1, due to improvement in market capitalisation, while it listed shares traded in mainland China on the emerging market (EM) index.

Brokerages estimated Pakistan’s weight in MSCI emerging market index to slightly fall after inclusion of China A shares.

“Due to China’s (expected) inclusion in MSCI EM, we anticipate a meagre selling by Tracker Funds of $1 million in May and another $1 million in August, which may be balanced off by unwinding of trades likely initiated by foreign active/prop funds in anticipation of this rebalancing,” Elixir Securities said in flash note.

MSCI further expelled Pakistan’s retail favourites from the small cap index in its semiannual review as fading interest in the shares and decline in market capitalisation brought them out of limelight.

“There will be 380 additions to and 303 deletions from the MSCI ACWI (All Country World Index) Small Cap Index,” said MSCI, a global leader in providing investment decision tools.

Equity analysts anticipated negative impact of the removal on the shares.

MSCI announced deletion of National Refinery, Pak Elektron (PAEL) and IGI Holdings (IGIHL) from its emerging market small cap index. PAEL and NRL were removed due to massive declines in their market capitalisation since semiannual index reviews in May and November last year, while IGIHL was likely removed owing to erosion in its market liquidity.

This would be “negative for sentiments in the retail favourite PAEL,” Elixir Securities said. MSCI EM small cap index now constitutes of 22 stocks from Pakistan, down from 25 in November and 27 in May 2017.

Engro Corporation continues to enjoy the largest weight amongst all the Pakistani companies in the Index.

There was no change announced for Pakistan constituents in the standard emerging market index.

Market was expecting addition of Pakistan Petroleum Limited in the MSCI EM standard index.

“We maintain that the stock does not meet the liquidity criteria, judged by ATVR (average traded value ratio),” Elixir Securities added.

Pakistan constituents of the MSCI EM index continue to be comprised of Habib Bank (HBL), United Bank, MCB Bank, Oil and Gas Development Company and Lucky Cement. HBL still commands the highest weight of 28 percent in MSCI Pakistan (LARGE/MID CAP) INDEX, translating into 0.022 percent of the MSCI EM.

The next review of semiannual review of MSCI has been scheduled to be held on August.

China A-shares (234 stocks), will represent an aggregate weight of 0.39 percent in the MSCI emerging market index at a 2.5 percent partial inclusion factor during the first step. The second phase of the entry will take place in September.

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