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Pakistan is scheduled to be reclassified from EM to FM by MSCI

Pakistan is slated to be reclassified from Emerging Markets to Frontier Markets on November 11th, with the shift taking effect by the end of November. This should bring an end to Pakistan’s 4.5-year EM index ride — the second in the country’s history — during which the market saw net foreign outflows of US$1.4 billion and performed 1.4 percent vs 26.2 percent for the MSCI EM index.

In conjunction with the present review, MSCI will hold a consultation to classify Pakistan on the MSCI FM 100 index and the MSCI Frontier Markets 15% Country Capped Index, with an announcement expected in February 22.

Also read: EBM has been named Pakistan’s “Best Place to Work”

Pakistan is expected to fetch an indicative weight of 1.9% in FM as per MSCI release, which is significantly lower than ~9% when the country exited FM back in 2017. While Argentina is downgraded from MSCI EM as a standalone index, potential reclassification to FM could further compress Pakistan’s weight in the index.

The transition is unlikely to alter market’s participation dynamics materially, and macro factors would continue to dominate market direction where possible resumption of IMF program with Govt. addressing structural issues, ease-off in commodity prices (Brent at its one month low, coal prices coming off 39% from peak), and relative calm on the political front to stretch current rally at the bourse (market +9.25% from recent low).

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