Faysal Bank joins MSCI Frontier Markets Index

MSCI has announced the results of its August Semi-Annual Index Review, adding Faysal Bank Limited (FABL) to its Frontier Markets Index, increasing the number of Pakistani constituents to 27. This marks the only change in the Pakistan lineup, and the adjustment will take effect at the close of trading on August 26.

Morgan Stanley Capital International (MSCI) is an investment research firm known for its benchmark indexes, including the MSCI Emerging Market Index and the MSCI Frontier Markets Index.

The firm's indexes provide stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds.

The addition of FABL reflects Pakistan’s continued positive momentum in global markets. Notably, Pakistan’s stock market has outperformed the MSCI Frontier Markets Index, delivering a 24% total return in dollar terms over May, June, and July, compared to the benchmark’s 20.4% gain.

MSCI raises market cap thresholds

In the latest review, MSCI raised the minimum threshold for stock inclusion, with free float market capitalization set at $90 million and total market capitalization at $181 million. These represent a 15-17% increase from the previous review in May, aligning with broader improvements across frontier markets.

Despite not meeting the free float criteria for a second consecutive review, three Pakistani stocks—International Industries (ILP), Abbot Laboratories (ABOT), and The Searle Company (SEARL)—remain in the index, likely due to MSCI’s “buffer rule”, which allows temporary leniency.

A similar precedent was seen in the past with TRG, which was retained temporarily before being removed in later reviews.

Estimated inflows and weight impact

With the inclusion of FABL, Pakistan’s estimated weight in the MSCI Frontier Markets Index is now around 6.0-6.5%, with FABL contributing approximately 8 basis points (bps). Assuming global funds of $2-3 billion tracking the index, inflows into FABL are projected between $1.5-2.3 million.

However, since Pakistan is currently not included in any major passive frontier market ETFs, trading activity in these names may remain limited.

MSCI small cap index changes

In the MSCI Small Cap Index, two Pakistani companies were added: Indus Dyeing (IDYM) and Jubilee General Insurance (JGICL).

Meanwhile, Habib Sugar Mills (HABSM) and Octopus Digital (OCTOPUS) were removed from the index.

Current constituents of MSCI Pakistan Frontier Market Index: OGDC, SYS, ILP, MARI, FFC, SNGP, PPL, HUBC, NBP, LUCK, EFERT, SAZEW, MCB, MTL, SEARL, UBL, BAFL, DGKC, ENGRO, PSO, MLCF, HBL, ABOT, FCCL, POL, BAHL, FABL.