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Pakistani Stocks Surge After MSCI’s Promise



Pakistani Stocks Surge After MSCI Did This

Pakistan's stock market rose more than they have in the last year after Morgan Stanley Capital International (MSCI Inc.) promised to add the country's equities to their Emerging Markets Index.

MSCI created ripples in Asian markets during the evening of June 14th by adding many Pakistani companies to its Emerging Markets index.

Pakistan has already set trends in the Asian markets this year as the region's best performer.

Historic Health
This year's good performance marks the latest in a nearly unbroken 8-year bull:


The graph above illustrates the remarkable recovery the economy made following the political unrest in the country in 2008.

That year, the Military-backed ruler Pervez Musharraf was forced to resign or face impeachment.

The KSE set an index floor in a bid to prevent a plunge.

For the most part, it worked – however, it resulted in a market downgrade to “Frontier” status.

The replacement Prime Minister Nawaz Sharif rescued the economy by joining an IMF loan program that saw growth in the following years and prevented a 2013 external payments crisis.

The last three years have seen solid growth, leading to this upgrade.

Experts Foresee Healthy Growth For Pakistan
This MSCI listing could attract as much as a $220 million in investments for the country, according to a note from JPMorgan Chase & Co published shortly after the news broke.

BMA Capital Management Ltd. was even more optimistic with a ballpark estimate in the region of $350 million.

EFG Hermes Holding SAE last month foresaw this possibility and estimated as much as $475 million inflow by the middle of next year!

Typically, this outperformance lasts from the announcement of the reclassification to implementation, which the MSCI has said will happen at its semi-annual review in May 2017.

JPMorgan says this will give the nation a 0.14% weighting in the index.

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Recognition Of Growth Begets More Growth
Although valuations on the country's stocks have fallen slightly over the last 12 months, analysts at firms like EFG Hermes and Tundra Founder say investors may be expected to pile-on as an upgrade often results in outperformance of a market.

Even the funds they're leaving behind on the Frontier Markets list will probably maintain their exposure to Karachi, per EFG Hermes.



This is borne out by Qatar and the UAE – the last two nations added to the MSCI Emerging Markets Index back in 2013.

They received boosts of more than 33% to their benchmark share gauges in just a year following their upgrades.

Domestically, the banks haven't had time to analyze the impact, and Karachi banks are moving to factor the MSCI activity into their forecasts.

The Companies That Make The Upgrade
The KSE100 index of the Karachi Stock Exchange saw a 2.7% increase on the day after the upgrade was mooted – the best in 14 months – and set a new record high at the closing time.

Pakistani banks like Habib & MCB and utilities/commodities like Lucky Cement, Maple Leaf Cement, Searle Co drugs, and Hub Power leaped by the maximum daily allowance of 5%.

Pakistan Oilfields Ltd. Closed out the day at +2.9%.


Overall, the MSCI Emerging Markets Index is up about 1.6%, making Pakistan a worthy addition, with its 17% jump year-on-year.

An Economic Success Story With A Cherry On Top
Finance Minister Ishaq Dar sent out an e-mail blast on Tuesday expressing his delight with the move by Morgan Stanley Capital International, and well he should.

Its acknowledgment and recognition of the work done since 2008 to make the country more attractive to foreign investors.

Minister Dar is now hard at work restructuring the country in response to the upgrade.

For what was a relatively flat market in 2008 to bounce out of the aforementioned political drama of that time – during which investors both local and foreign found themselves trapped in a restricted market – is remarkable.

Only through a broad-ranging program of market reforms has Pakistan regained and strengthened the faith of its investors.

Intermarket called the mood in Pakistani markets “jovial” in a research note.

Long may it continue, in Pakistan, the future looks bright.


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