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Emerging market status

Emerging market status

The MSCI World Index has upgraded the Pakistan Stock Exchange to the emerging markets status, paving the way for international investors to have their share in $1.7 trillion equity market of the country.With achievement of the status, the fund managers and market experts are hoping that the global players could invest up to $500 million in the market through the emerging market index funds. The MSCI World Index is part of the modern index strategy and a broad global equity benchmark which represents the performance of large and mid-cap equity across 23 developed markets economies. The leading index, which provides international investment decision support tools, covers nearly 85 percent of the free float-adjusted market capitalization in each country under review. The MSCI World benchmark does not offer exposure to emerging markets. In its May 2017 Semi‐Annual Index Review, in which the bench has upgraded Pakistan as an emerging market from a frontier market status, suggest that the investment from international players will flow through the market. The reclassification of the market will be effective from June 1. Earlier, the world media reports highlighted and branded the performance of the Pakistan Stock Exchange better than the equity markets of India and China and hoped that the new status would ensure greater inflows of funds from global investors.

Experts believe nearly 20 percent out of the total funds tracking the MSCI emerging market, at least $300billion are passive funds with expected weight of 0.1 percent in the emerging market index. It is due to the fact that the country’s equity market emulated the reaction of some Gulf States markets, which gained much attention after their inclusion in MSCI in June 2014. Experts hope an inflow of half a billion dollars in the stock exchange whereas Pakistan’s weight in the index lost nearly 0.10 percent against original 0.19 percent proforma weight which was calculated at the time of the decision to reclassify the country as the emerging market. The private sector companies, qualified for the main index, include United Bank, Habib Bank, Lucky Cement, Oil and Gas Development Company, MCB and Engro Corporation whereas Hub Power, Pakistan State Oil and Fauji Fertilizer are re-located to small-cap stocks.

The stock exchange of a country is considered the barometer of the economy and the inclusion of the Pakistan Stock Exchange in the emerging market domain is a good omen for the country’s economy. What the regulatory bodies of the country, including the Security and Exchange Commission of Pakistan, has to do is to ensure the enforcement of law for safety of the foreign investment.