AKD Quotidian about — Pakistan Market: Clear winner in the new MSCI FM 100!

Karachi, April 03, 2014 (PPI-OT): Pakistan Market: Clear whiner in the new MSCI FM 100′

As per a MSCI press release, the proposals for the new calculation methodology tor the MSCI FM 100 index have been, approved, including applying a cap of 40% to the cumulative weights of the two largest countries in the basket (Kuwait + Nigeria) and applying a higher float-adjusted market cap requirement to Index constituents( US$24Omn). As a result AKD Securities understands that Pakistan weight in the FM Basket may increase to about 8.9% from, close to 4.3% at present.

At the same time, the MSCI simulation indicates that 12 Pakistani companies may be represented in the FM basket, with LUCK, PSO and BAHL appearing to be new entrants. With Pakistan set to emerge as the 3rd largest FM market(broadly at par with Argentina) amidst an ongoing macro turnaround.

AKD Securities expects Pakistan to increasingly register on foreign Investors radars, vindicated by the cumulative net FPI inflow of US$21.3mn in the last 3 trading sessions. At current levels, names AKD Securities like Includes BAFL. NBF, NML DGKC= and OGDC.

The new methodology :last month proposed changes to the methodology for the MSCI Frontier Markets 100 Index have been approved where salient Changes include : 1) appIying a cape of 40% to the cumulative weight of the two largest countries in the basket(Kuwait +Nigeria ),2 applying a higher minimum free float –adjusted market cap requirement (US$24Omn)and 3 allowing the number of constituents in the FM 100 index to fluctuate between 85 and 115 at the time of the Semi –Annual index reviews, In particular, the effect of capping cumulative weights for the largest countries in the basket holds positives for the rest of the FM space including Pakistan , Bangladesh and Vietnam ,among others.

Pakistan weight can go t0 8.9%~ As per the result of the MSCI simulation Carried out on Mar 26’14. Pakistan’s weight in the MSCI FM 100 Index will rise to 7.3% from current 4.3% there Is no cap placed on the cumulative weights Kuwait and Nigeria. However, upon limiting the cumulative weight of these Two heavy weight countries, Pakistan’s weight will go to 8.0% placing it at 3rd position (broadly at par with Argentina).

This boost to be weight will also be aided by 3 additional constituents from Pakistan, taking the total number of Pakistani stock to 12 from 9 currently , all meeting the above mentioned free float market cap floor. New entrants as per the simulation appear to be PSO, Luck and BAHL. In addition to OGUC, PPL. POL, HUBC, FFC, ENGRO. MCB and UBL, which are already part of the current MSCl FM 100 Index.

Investment perspective From its recent trough of 25.478.9 points, the KSE- 1 00 Index has rallied by 10% in a matter 26 trading sessions .This is largely due to returning foreign participation at the bourse with the last 3 mn. Now with the proposed changes to the FM 100 methodology set to be implemented over the next 3 m-6m, AKD Securities expects Pakistan to register even more on foreign investors radars particularly as portfolio recalibration takes place –At current levels ,names AKD Securities like includes are ,BAFL.NBP, NML, DGKC, and OGDC.

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