Mobius doesn’t agree with Pakistan’s emerging market status
Mark Mobius, emerging markets fund manager at Franklin Templeton believes Pakistan (PAK) should not have graduated to emerging markets (EEM) index just yet. Raising questions on the country’s state of corporate governance and transparency, he said he would continue to treat Pakistan as a frontier market, despite MSCI’s recent upgrade.
In a statement to Bloomberg, Mobius mentioned, “We don’t think Pakistan is ready to graduate to an emerging market yet.” Templeton considers metrics like corporate governance and transparency when labeling a country as emerging markets, while index providers like MSCI mainly take into consideration a country’s liquidity, market capitalization, and trading volumes.
Mobius continued, “If the market cap increases, trading turnover and number of shares increase, the index people may upgrade. But it can’t be said that companies have really improved their governance or improved their behavior generally.” Templeton remains bullish on Pakistan’s growth prospects despite the conflicts related to classification.
Mattias Martinsson, CIO of Tundra Founder sees the market from a different perspective. Tundra is the only large global fund to maintain a physical presence in Pakistan. Martinsson said Pakistan’s disclosures at major companies were on par with other emerging markets.
Nadeem Naqvi, Managing Director of Karachi Stock Exchange (KSE) refutes Mobius’ views. He believes Pakistan’s regulatory measures related to disclosures and corporate governance are at international standards. In an interview with Bloomberg, he mentioned that Pakistan is reaching a “tipping point” in terms of transparency and governance measures. The country’s benchmark index surged 46% in 2016 making it the best performing market across Asia.