Govt. to rescue Pakistan’s MSCI Emerging Market Status

• A dedicated fund is under deliberation to support investor confidence

• MSCI Downgrade will be a dent on PTI Government’s Reputation

Karachi, 12^th April, 2019: Reliable sources confirmed Investors Lounge that a scheduled Policy Board Meeting was held in Islamabad on Thursday which was joined by top level officials from Karachi as well on video link. In the meeting, Policy board has recommended to form a stock market support fund to boost investor confidence on Pakistan’s capital markets, especially at a time when Pakistan’s Emerging Market status will be under scrutiny in MSCI Review. The fund may be managed by multiple state-owned institutions together. Date of fund launch and its size is yet to be confirmed but it is likely to be before the MSCI Emerging Market Review scheduled for 13^th May, 2019. It is also not confirmed if it will be announced publicly or operate silently through state owned institutions.

SECP official categorically denied any such rumor, stating that “It was a scheduled policy board meeting and there was not such item on the agenda. SECP is developing a broad framework for the development of capital markets which includes the insurance sector regulations, mitigation of systematic risk and digitization of systems.” On the question about the systematic risk of Pakistan’s exclusion from MSCI Emerging Markets, SECP Official stated that “SECP is making efforts to maintain MSCI’s Emerging Market status in coordination with key stakeholders.” EFG Hermes Research stated in its report dated 25^th March, 2019 stated, “a downgrade would lead to USD 200MN passive outflows.” They assigned 50% probability that Pakistan will be put on review in MSCI Review Meeting. If put on review, EFG Hermes says, it would be 100% probability of a downgrade.

We reached out to Shamoon Tariq, Vice CIO and Partner at Tundra Fonder, to take his perspective on the situation as he recently highlighted the possibility of downgrade in foreign media. He said, “The government should focus on capital market given the liquidity is now at historic low and will remain unattractive for foreign investors if this situation persists. From flows perspective, it might not be that bad to be downgraded to Frontier markets index as it will have a higher weightage and will attract passive frontier market investors compared to a negligible weightage in Emerging markets index.

However, perception wise it will surely be a dent. I am disappointed to see Pakistan reaching this threat as I traveled on road shows alongside PSX and SECP to lobby for Pakistan’s upgrade in Emerging market status in 2015.”

It is crucial time for the country when market is awaiting the news about the offshore oil discovery, IMF program decision, and MSCI Emerging Market Review. Moreover, amnesty scheme is in finalization phase and Low-Cost Housing Scheme is being launched in coming days. If PTI Government fails to uplift investor confidence, Pakistan will fall short of MSCI Emerging Market criteria and can be downgraded to Frontier Markets.

Currently, MCB Bank Limited and Habib Bank Limited are falling short of the minimum market capitalization criteria of MSCI.