Pakistan’s representation in the MSCI frontier market index is poised to grow

Overview

According to the recent MSCI index review for May 2024, Pakistan’s weight in the MSCI Frontier Market (FM) index is expected to rise significantly. This increase is driven by the addition of the National Bank of Pakistan (NBP) to the index, along with a notable increase in the free float market capitalization of existing constituents.

Key Changes

• Inclusion of NBP: The addition of NBP to the MSCI FM index contributes to an overall increase in Pakistan’s weight.
• Free Float Market Cap Growth: The free float market cap of the existing 20 constituents has surged by approximately 12%, further boosting Pakistan’s weight.

Expected Increase in Weight

The overall weight of Pakistan in the MSCI FM index is anticipated to rise by 30-40 basis points (bps), reaching a range of 4.0-4.3%.

Impact on MSCI Small Cap Index

Despite no additions to the MSCI Small Cap Index, Pakistan’s weight is forecasted to increase by approximately 50-60 bps to 3.4-3.5%, driven by strong returns of existing constituents compared to the index.

Inflows Estimation

Based on proxy approaches to Emerging Market index data, it is estimated that assets under management (AUMs) benchmarked to the MSCI FM index are around US$10 billion. This change in weight and the addition of NBP could lead to gross inflows of US$30-40 million.

Foreigners’ Buying Pattern

Foreign corporate entities have displayed significant buying activity in Pakistan’s market, with purchases amounting to US$34.4 million and sales worth US$20.7 million since May 2, 2024.

Implementation and Inflows

Partial inflows have already been witnessed due to recent foreign buying patterns. The remainder of the inflows is expected closer to the implementation date of June 3, 2024.

Disclaimer: The information in this article is based on research by Topline Securities. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.