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Morgan Stanley Capital International (MSCI) is anticipated to expand its global Frontier Market (FM) index to include four additional Pakistani companies in its upcoming Quarterly Index Review (QIR) next month. This expected inclusion, driven by a rise in share prices, is likely to attract significant foreign investment, given the index’s influence on global investment decisions.
The four companies projected for inclusion are DG Khan Cement (DGKC), Sazgar Engineering (SAZEW), Faysal Bank (FABL), and Fauji Fertiliser Bin Qasim (FFBL). Additionally, Fauji Cement (FCCL) might also be added, although its free float is just slightly above the last review threshold. TRG (The Resource Group) Pakistan might face exclusion due to its market capitalisation falling short of the $126 million requirement, though it may remain in the index due to the buffer rule.
The QIR, scheduled for announcement on August 12, 2024, will be effective from September 2, 2024. In the last review, MSCI revised the thresholds for frontier market stocks, increasing the free float from $57 million to $63 million and the market capitalisation threshold from $114 million to $126 million. The four companies currently meet these criteria based on the last review.
Following the addition of these companies and a 9% increase in the market cap of existing constituents, Pakistan’s weight in the FM index is projected to rise by 35-45 basis points to 4.7-4.8% from the current 4.2-4.3%. This adjustment is expected to result in gross inflows of $20-45 million, assuming an asset under management (AUM) size of $5-10 billion tracking the MSCI FM index.
International investors have already been increasing their stakes in PSX-listed companies, anticipating the forthcoming $7 billion IMF extended fund facility (EFF) for Pakistan. Finance Minister Muhammad Aurangzeb has confirmed that the IMF Executive Board is set to approve the loan in August 2024, following the achievement of an IMF staff-level agreement last month.
The PSX benchmark KSE 100 Index recently hit an all-time high near 82,000 points in mid-July 2024, reflecting a remarkable growth of over 100% from around 40,000 points in June 2023. However, the index closed at 78,226 points on August 2, 2024, due to profit-taking amidst political uncertainties. Local brokerage houses project the index could reach nearly 110,000 points by the end of the current fiscal year on June 30, 2025, buoyed by the anticipated IMF programme and improved investor confidence.
The MSCI’s upcoming review and the IMF loan approval are expected to further boost foreign investment and market performance, strengthening Pakistan’s position in the global frontier markets.
