The inclusion of NBP in the FM index boosts investor confidence

KARACHI:

Morgan Stanley Capital International (MSCI) on Wednesday upgraded Pakistan’s status by adding a new company from the country to its main global Frontier Market (FM) index, a move that boosted global investor confidence in Pakistan.

Global investors, with funds totaling $10 billion, track this index to make investment decisions worldwide, including Pakistan.

With the addition of National Bank of Pakistan (NBP) to the main index, the total number of Pakistani companies in the FM index now stands at 21. The inclusion of NBP will be officially effective from June 1, 2024.

This decision by MSCI to include NBP in the FM index was announced after the completion of the semi-annual review of global indices, which was conducted early on Wednesday according to Pakistan Standard Time.

Over the past year or so, MSCI has consistently added Pakistani companies to its Frontier Market Index in almost every quarterly and half-yearly review as these companies have met the criteria to increase their share prices on the Pakistan Stock Exchange (PSX). .

In the previous quarterly review in February 2024, three Pakistani companies were added to the Frontier Market Index.

The significant rise in share prices is evident from the benchmark PSX KSE 100 Index, which surged to an intraday record high of over 75,000 points on Wednesday from around 40,000 points in June 2023, posting an outstanding return of 87.5% in the last 11 months.

However, MSCI made no additions or deletions from the MSCI Pakistan Frontier Market Small Cap index, keeping the total number of local companies in the country’s standalone index at 56. In February 2024, the index provider added 19 Pakistani companies to the index for the country.

According to Topline Research’s post-half-yearly review commentary, Pakistan’s overall weight in the Frontier Market Index, with the inclusion of NBP and the increase in the free float market cap of the existing 20 items by 12%, is expected to increase by 30% . -40 basis points to 4-4.3%.

Similarly, Pakistan’s weighting in the MSCI Small Cap Index is also expected to increase, despite additions to the index, as Pakistan’s existing 56 constituents have returned 16% in US dollar terms since 1 February 2024 (last revised), to compared to a 5% decline in the MSCI Frontier Market Small Cap index. The expected increase in Pakistan’s weight in the small cap index is estimated to be in the range of 50-60 basis points, reaching 3.4-3.5%.

Reports suggest that assets under management (AUMs) benchmarked against the MSCI FM index are around $10 billion, with a free float of $119 billion. At this estimate, a gross inflow of $30-40 million is expected due to the change in total weight and the addition of NBP.

Foreign companies have already bought shares worth $34.4 million and sold shares worth $20.7 million since May 2, 2024, it said.

Looking at the buying pattern of foreigners in the last one or two weeks, it is believed that Pakistan has already experienced a portion of these inflows, with the rest expected to come in by the implementation date of June 3, 2024.

Arif Habib Limited said the benchmark PSX KSE100 outperformed all MSCI frontier markets and the MSCI FM index during the 2024 financial year to date (July-May), with a return of 85%. Additionally, Pakistan remains the second most liquid market in the MSCI FM space, with an average daily trade value of $54.2 million year-to-date.

Overall, NBP’s weight in the main MSCI index is expected to be around 0.06%, with an expected inflow of $2.5 million (17.5 million shares at Wednesday’s close).

Published in The Express Tribune, May 16^u2024.

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