Pakistan: A soon-to-be Emerging Market
Beginning in May this year, MSCI, the world’s (ACWI) leading provider of research-based indexes, will include Pakistan (PAK) among its emerging markets’ basket. According to an announcement made by the MSCI last year, Pakistan will be reclassified from Frontier Markets (FRN) to Emerging Markets (VWO) status, coinciding with its May 2017 Semi-Annual Index Review.
Pakistan is currently part of the MSCI’s Frontier Markets Index. In June last year, MSCI decided to include this South Asian market in its MSCI Emerging Market Index which currently holds 23 emerging markets representing 10% of world market capitalization (as depicted above).
The popular iShares MSCI Emerging Markets ETF (EEM) tracks the MSCI Emerging Markets Index. EEM has returned 25.5% over the past year and has returned over 7.5% to investors in the year so far (as of Feb 3). The fund’s portfolio has the following regional breakdown:
Pakistan’s inclusion would thus, make it the 24th emerging market in MSCI’s emerging market basket.
Upgrade to spur investments
The Pakistani equity tracking KSE100 Index has generated a 52.81% return over the past one year. The upgrade is expected to generate inflows of global portfolio investment, amounting to $475 million by the middle of 2017, according to EFG Hermes – an Egypt-based investment bank. Pakistan’s finance minister, Ishaq Dar has said Pakistan has achieved the global recognition due to its fast growing economy.
The KSE100 Index crossed the 50,000-point threshold on January 24 for the first time in its history after passing its own record highs several times since late last year.
Pakistan had earlier been a part of the MSCI’s Emerging Markets Index from 1994-2008. In December 2008, Pakistan was dropped from the list on account of Karachi stock exchange’s temporary closure due to a liquidity crunch. Later in May 2009, the economy was again recognized by the MSCI, but this time as part of the MSCI’s Frontier Markets Index. In June 2015, the MSCI included Pakistan in its list of possible reclassifications on the grounds of improving transparency and liquidity in its capital market. It was on June 14, 2016, that the MSCI came out with its decision to include Pakistan in the Emerging Markets index again.