MSCI proposes to downgrade Pakistan’s stock market

In a major surprise, the MSCI last week proposed to downgrade the Pakistan Stock Exchange (PSX) to its Frontier Markets (FM) Index from the Emerging Markets (EM) Index in November 2021.

As an immediate reaction to the potential move, local and foreign investors may resort to panic selling of shares at the Pakistan stock market and new investors may take fresh positions across the board.

“The (final) decision in this regard (the MSCI proposal) will be announced on September 7, 2021,” Arif Habib Limited Head of Research Tahir Abbas said in a commentary.

The MSCI is expected to discuss the potential reclassification with market participants by August 31, 2021.

“The reason for potential reclassification is the steady decline in market capitalisation of Pakistan’s constituents (companies listed at the PSX) since 2017, leading to ineligibility of the stock market to meet the criteria for market classification framework for the EM Index,” he said citing the MSCI.

Moreover, the index continuity rule has been applied to MSCI Pak since November 2018 to artificially keep the MSCI Pak index in EM.

Since November 2019, none of the three companies in MSCI EM have managed to meet the emerging market classification framework.

“Due to this, the MSCI has proposed to reclassify MSCI Pak to the FM Index,” he said.

Pakistan had been upgraded to the MSCI EM Index in May 2017 after a gap of nine years.(Courtesy 
Tribune.com)