Two Pakistan banks likely to be added in global stocks index in Nov

Two Pakistani banks and a fertlizers company are expected to be included in the MSCI Frontier Index following a review in November, according to an analysis by a brokerage house.

The MSCI is scheduled to announce its November index review next week, which will take effect on the 25^th.

The MSCI Frontier Markets Index captures large and mid-cap companies across 28 frontier market countries.

Presently, 27 stocks of Pakistan are part of the MSCI Frontier Index with a weight of 5.13% as of July with Fauji Fertilizer Company holding the highest weight of 0.6%, followed by United Bank Ltd 0.4%, and Lucky Cement 0.35%.

Topline Securities assessed that these weights, using the FIF (Foreign Inclusion Factor), are used by MSCI in its work to determine the free float market cap of companies.

During the November review, Topline Securities expects inclusion of Fatima Fertiliser (FATIMA), Askari Bank (AKBL) and Bank of Punjab (BOP) in the MSCI Frontier Index.

A few companies currently part of the index meet specific criteria – Abbott Pakistan (ABOT), which meets the minimum free float requirement, and Bank Al Habib (BAHL), which meets the liquidity requirement.

Excluding these companies cannot be ruled out unless they are retained under buffer rules, the brokerage assessed.

The brokerage firm estimated that Pakistan's weight in the MSCI frontier market index is close to 5.4-5.5%. With the new additions, the weight can increase by 23bps.

FTSE increased Pakistan weight to 10%

The report also mentioned that Pakistan’s position in the FTSE Frontier Market Index has improved more sharply.

In September, FTSE increased Pakistan’s weight in its Frontier Market Index from 3.63% in August to 10.06%. The number of companies in the index has increased from 16 to 58.

The FTSE Frontier Index is a compilation of benchmarks for the performance of large, mid and small-cap equity securities from markets in Europe, the Americas, Asia-Pacific, Africa and the Middle East. FTSE Frontier

Despite a significant increase in weight in the FTSE frontier index, the report said Pakistan didn’t witness any major inflow as no big passive/active funds are tracking the FTSE frontier index.

Last year, Pakistan witnessed an outflow when FTSE downgraded Pakistan to Frontier from Secondary Emerging, which triggered selling by Vanguard.

Topline Securities said the change in weight or addition to the MSCI frontier index might not result in significant flows to Pakistan, as global funds tracking frontier indexes are either closed or have low AUMs.