According to APP, “Pakistan was downgraded to frontier status in December 2008,four months after the Karachi Stock Exchange imposed a rule that caused near total paralysis of market activity for more than three months.” The Index Provider has been considering the reclassification and according to Bloomberg it has been reviewing Pakistan’s performance since last year.
The Bloomberg reports that, Pakistan’s stock market is declared as Asia’s best performing stock market as KSE showed a gain of 15%.
Apart from this, the extremely good news is that, MSCI (Morgan Stanley Capital International) reports that there is a possibility of the elevation of Pakistan to emerging market status, as there is improvement in liquidity and transparency.
Farid Ahmed Khan, the Karachi-based chief executive officer at ABL Asset Management Co said that, Pakistan has a very fair chance to make it to the emerging market index. According to Tundra Founder, a fund manager specializing in frontier markets, Pakistan has a “70 percent chance” of being promoted. Mattias Martinsson, the Stockholm based chief investment officer also confirmed that
“Pakistan is moving into acceptance: the nation has what it needs, a decently functional state and decent stability.”
When inquired about Pakistan, a London based chief economist, Charlie Robertson at Renaissance Capital Ltd told Bloomberg that,
“Pakistan is the most budding and untapped investment prospect in the emerging or frontier markets. The main reason for this transformation is a changed fiscal scenario, privatization, provision of reforms and improving relations with the IMF. Pakistan’s reformation story is getting even better than that of neighbouring India.”
MSCI’s Frontier Market Index currently features 16 Pakistani companies that make up about 9 percent of the gauge, including Engro Corporation, Fatima Fertilizers, Fauji Fertilizers, Habib Bank, National Bank, United Bank, OGDC, Hubco, K Electric, Indus Motors, Lucky Cement, Pakistan Petroleum, PSO, PTCL and Pakistan Oilfields. MSCI believes that based on the simulation of existing data, the number of constituents will possibly reduce to six, in case of a conceivable reclassification, resulting in a drop of 32% in market capitalisation.
This means, due to the possible reclassification, there is a higher expectation and possibility of increased foreign inflows in investments to the Pakistani equity market. A market expert Tahir further explains, “Although Pakistan’s weight in the Emerging Markets will be small, (the size of) funds tracking Emerging Markets is many times higher than (that of) funds tracking the Frontier Markets.”
Experts like Riaz Haq, believe that the massive Chinese commitment to invest $46 billion in Pakistan’s energy and infrastructure projects as part of China-Pakistan Economic Corridor has added to the excitement about Pakistan’s brightening prospects.
The report by Bloomberg further states that, the government has shown seriousness to boost economic growth and the market dominance of Pakistan means that its an ideal choice for those seeking alternatives for investment,
“Basically people are looking for alternatives, finding markets that are less correlated to the U.S. interest-rate cycle and the China macro slowdown. Pakistan, no doubt, is one of the outstanding spots.”
While the entrepreneurial ecosystem is in the process of development, news like this would boost the confidence of the business community. It is also important to highlight the need for a more concentrated effort to facilitate emerging businesses, so they can understand the market dynamics and further investor relations.