Saifullah Sani
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Despite its stock market being one-hundredth the size of mainland China’s, Pakistan has managed to qualify for the popular MSCI Emerging Markets Index while its larger Asian neighbor has been left out in the cold.
The Pakistan Stock Exchange’s benchmark KSE 100 index gained 2.8% Wednesday, then rose further Thursday to be up a total of 1,234 points, or 3.3%, to a record close of 38751.60 since MSCI’s announcement late Tuesday.
MSCI’s decision to snub China’s A-stocks while upgrading Pakistan from a frontier market to an emerging market came down to capital mobility, said Saad Hashemy, chief economist at Topline Securities, a Karachi-based brokerage.
“The Pakistani market has no limitations on foreign ownership, no controls. People can bring in money and take it out,” Mr. Hashemy said. “Over the years, liquidity in the Pakistani market has improved tremendously. That’s the key reason.”
Repatriation is much more difficult in China because of investment rules. Chinese authorities hurriedly tried to meet the criteria for inclusion in the index in the weeks leading up to the decision, but were unable to convince MSCI.
Analysts and brokers in Pakistan said the decision to upgrade the country to the emerging-markets group will lead to significant foreign-investment inflows, considering the size of the index. Funds with assets valued at $1.5 trillion track the MSCI Emerging Markets Index. Brokers said the upgrade is likely to attract other investors, too, considering Pakistan’s stable macroeconomic indicators and steady growth at the stock exchange.
Pakistan was removed from the emerging-market index in 2008 because of a deteriorating investment climate amid political instability.
The government of Prime Minister Nawaz Sharif made boosting foreign investment in Pakistan a key part of its plan to revive the country’s economy when it came into power in 2013. On Wednesday, Mr. Sharif said the MSCI decision “is a reflection of our prudent economic policies and strong financial discipline.”
Pakistan’s benchmark 100-stock index has gained more than 90% since the 2013 elections that brought Mr. Sharif’s party into power. Gross-domestic-product growth for the 2015-16 financial year was 4.7%, below the targeted 5.5% but the highest pace in eight years.
Finance Minister Ishaq Dar said earlier this month that after achieving stabilization targets, the government will aim to boost growth now. Mr. Dar said Pakistan won’t seek assistance from the International Monetary Fund beyond the current program, which helped avert a balance-of-payments crisis and ends in September.
As a result of the MSCI upgrade, brokers and analysts said, Pakistan is expected to see a significant boost in foreign investment in the next year. Reclassification of Pakistan to the emerging-markets index will occur in May 2017.
Insight Securities, a Karachi-based brokerage firm, estimated investment inflows at between $300 million and $500 million. Mr. Hashemy of Topline said his firm’s “rough estimate” of inflows is $600 million over the next year. “Total foreign holding [in Pakistani stocks] is $6 billion to $7 billion, so 10% is a big number,” Mr. Hashemy said.
http://www.wsj.com/articles/pakista...ng-for-msci-emerging-markets-index-1466011295
The Pakistan Stock Exchange’s benchmark KSE 100 index gained 2.8% Wednesday, then rose further Thursday to be up a total of 1,234 points, or 3.3%, to a record close of 38751.60 since MSCI’s announcement late Tuesday.
MSCI’s decision to snub China’s A-stocks while upgrading Pakistan from a frontier market to an emerging market came down to capital mobility, said Saad Hashemy, chief economist at Topline Securities, a Karachi-based brokerage.
“The Pakistani market has no limitations on foreign ownership, no controls. People can bring in money and take it out,” Mr. Hashemy said. “Over the years, liquidity in the Pakistani market has improved tremendously. That’s the key reason.”
Repatriation is much more difficult in China because of investment rules. Chinese authorities hurriedly tried to meet the criteria for inclusion in the index in the weeks leading up to the decision, but were unable to convince MSCI.
Analysts and brokers in Pakistan said the decision to upgrade the country to the emerging-markets group will lead to significant foreign-investment inflows, considering the size of the index. Funds with assets valued at $1.5 trillion track the MSCI Emerging Markets Index. Brokers said the upgrade is likely to attract other investors, too, considering Pakistan’s stable macroeconomic indicators and steady growth at the stock exchange.
Pakistan was removed from the emerging-market index in 2008 because of a deteriorating investment climate amid political instability.
The government of Prime Minister Nawaz Sharif made boosting foreign investment in Pakistan a key part of its plan to revive the country’s economy when it came into power in 2013. On Wednesday, Mr. Sharif said the MSCI decision “is a reflection of our prudent economic policies and strong financial discipline.”
Pakistan’s benchmark 100-stock index has gained more than 90% since the 2013 elections that brought Mr. Sharif’s party into power. Gross-domestic-product growth for the 2015-16 financial year was 4.7%, below the targeted 5.5% but the highest pace in eight years.
Finance Minister Ishaq Dar said earlier this month that after achieving stabilization targets, the government will aim to boost growth now. Mr. Dar said Pakistan won’t seek assistance from the International Monetary Fund beyond the current program, which helped avert a balance-of-payments crisis and ends in September.
As a result of the MSCI upgrade, brokers and analysts said, Pakistan is expected to see a significant boost in foreign investment in the next year. Reclassification of Pakistan to the emerging-markets index will occur in May 2017.
Insight Securities, a Karachi-based brokerage firm, estimated investment inflows at between $300 million and $500 million. Mr. Hashemy of Topline said his firm’s “rough estimate” of inflows is $600 million over the next year. “Total foreign holding [in Pakistani stocks] is $6 billion to $7 billion, so 10% is a big number,” Mr. Hashemy said.
http://www.wsj.com/articles/pakista...ng-for-msci-emerging-markets-index-1466011295
