Morgan Stanley downgrades Pakistan Stock Exchange from emerging to frontier

Morgan Stanley Pakistan

The Morgan Stanley Capital International (MSCI) has announced to cut down Pakistan Stock Exchange (PSX) among reduced progressive economies into Frontier Markets (FM) index from December 1, 2021. 

According to MSCI, “Although the Pakistani equity market meets the requirements for market accessibility under the classification framework for emerging markets, no longer meets the standards for size and liquidity.” 

It was categorized in MSCI’s main Emerging Markets (EM) index from May 2017 when the standard KSE-100 Index knock out a record of 53,000 points, but the country was futile to sustain the level and the index never came back to that high level since then. 

Read more: Pakistan Stock Exchange sets 13-year record, achieved highest value shares

By all accounts, the market has mostly anticipated the announced decision as stakeholders constantly sell stocks for a few days at PSX. 

In view of that, the decision was taken by Morgan Stanley to demote Pakistan Stock Exchange into Frontier Markets (FM) from Emerging Markets (EM) stands ‘negative-to-neutral’ for shareholders. They (foreign and local investors) may still, dump shares in an instant gesture to formally admit the decision and cherry-pick stocks later at lower prices. 

Besides this, some experts have a belief the MSCI’s recent decision on Pakistan is like an inspiration, because it has taken PSX back into the limelight with the weightage of 1.9% in Frontier Markets in contrast to that of two basis points in Emerging Markets at present. 

“The comparatively higher weight in FM would highlight PSX in the eyes of global investors compared to its negligible size in EM,” Arif Habib Limited Head of Research Tahir Abbas said. 

“MSCI will reclassify the MSCI Pakistan Indexes from Emerging Markets to Frontier Markets in one step, coinciding with the November 2021 Semi-Annual Index Review (SAIR),” MSCI said in a statement. 

Additionally, from the November 2021 SAIR, the MSCI Pakistan Indexes would be recalibrated by using size and liquidity supplies for smaller, average liquidity frontline markets as defined in section 5.2 of the MSCI Global Investable Market Indexes Methodology, it said. 

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