“One of the most surprising things is that Pakistani companies are the best-run companies in Asia…Part of that has to do with that they have operated in a challenging environment for the past few decades.”
By Irshad Salim
Pakistan stock market will see more trading by foreign and local investors after its graduation as emerging market.
According to the Wall Street Journal’s latest report, MSCI’s move to promote Pakistan to emerging market from frontier market could prompt more money to flow into the country. Some observers say the projection may hold true despite political rumblings. The Barrons and Seeking Alpha (welknown financial media) had earlier made a similar forecast.
In May, index provider MSCI Inc. decided to give Pakistan emerging-market status and added it to the MSCI Emerging Markets Index. MSCI had previously classified the country as a frontier market back in 2008 — 9 years ago.
Emerging markets are more economically developed than frontier markets by definition, WSJ says, and generally are considered less risky by investors. Much more money is invested in funds that track emerging-markets indexes than in those that track frontier-markets indexes.
What led Pakistan to gain the emerging market status despite all the negative image being peddled worldwide?
Gradual but continued improvements in the macroeconomic fundamentals, better security and stability environment, continuity of project democracy, and market confidence shown in its stock market led to the KSE-100 Index becoming the fastest growing in Asia. It’s buoyancy is opening the door to global investors that track the MSCI index with $1.4-1.7 trillion in hand.
“The great thing about (Pakistan) being added to an index is that pretty soon there will be inflows of money to the country,” WSJ quoted Satya Patel, who’s a portfolio manager at Matthews Asia in San Francisco. For one thing, when a country is added to an index, funds that aim to track that index need to buy stocks in that country.
“In this case, they will sell dollars and buy Pakistani rupees in order to buy the local stocks,” Mr. Patel says. Ultimately, the inflow of foreign currency helps stabilize a country’s economy, he says. Having a sizable stash of foreign currency typically helps a country maintain the flow of imports and support the home currency on world markets. It also provides reserves for possible use in an economic or political crisis, which can help reassure foreign investors that their money is safe in the country.
Mr. Patel says Pakistan’s new status also may help draw attention to the investment opportunities there, aside from index-related purchases.
“One of the most surprising things is that Pakistani companies are the best-run companies in Asia,” he says. “Part of that has to do with that they have operated in a challenging environment for the past few decades.”
The Pakistan Stock Exchange (PSX) stood out as the best performing market in Asia in 2016 by giving out a return of 46pc. That itself was an indicator where trading money is flowing, according to several market analysts.
On May 25 the KSE-100 index hit a peak of 53,123 points with Pakistan’s equity market grown to be valued more than Rs10 trillion.
According to reports, the petroleum sector has attracted over $10 billion foreign investment despite low oil price scenario in international market during the last four years.
Besides, world’s major players are showing interest to invest in LNG sector of Pakistan after seeing immense business potential of the commodity here.
The $62 billion China-Pakistan Economic Corridor program is also expected to lead to more public offerings (IPOs) by local and foreign companies through the stock market – to cash in on its synergy.
As per the MSCI index induction, six large-capital Pakistani stocks are now be part of the MSCI Pakistan Index with effect from June 1, 2017.
Oil and Gas Development Company
Habib Bank Limited
United Bank Limited
Additionally, 27 small-cap stocks were included into the MSCI Pakistan Index.
Fauji Fertilizer Bin Qasim
Fauji Fertilizer Company
Indus Motor Company
DG Khan Cement
Kot Addu Power Company
Maple Leaf Cement
National Bank of Pakistan
Pak Suzuki Motor Company
Pakistan State Oil
Sui Northern Gas Pipelines