MSCI downgrade, PSX fully recovered index gaining241 points
Summary
Investors during the week were expecting since June26 , the global index provider would announce a decision on Sept 7 after consultation with market participant the option to demote Pakistan back to frontier market ( F M ) from emerging markets ( EM ) since the number of companies in the Pakistan index that met the size and liquidity criterion for placement on the MSCI EM was below the minimum of three.
The great expectation at the time of upgrade to FM and an instant inflow of $500 m of foreign funds on May 17,2017 failed to materialized although benchmark index crossed the all time high of 52,000 points on excited investors anticipatory purchases and went into free fall far down and yet trying to reach back to that level.
Some investors are of the view that reclassification would be a blessing in disguise as it would provide Pakistan access to larger foreign funds Therefore we find the market going up by 801 points on Thursday and Friday,
The KSE-100 Index during the week surged by 241 points to cross47,00 psychological level to close at 47,198.29. Trading activity declined to av429m shares as compared to 461m shares The Market Capitalization increased by Rs.14 bn to stand on Friday at Rs,8,255 T. The foreigners shed $18.62 m which were absorbed by buying by Individuals $12.86m and Insurance companies $6.20m
Monday :KSE-100 46,918.52 (-38.95) Vol 418m Market Cap Rs.8,245 T
Tuesday : KSE-100 46,729.96 (-188.56 ) Vol 424m Market Cap Rs.8,218 T
Wednesday: KSE100 46,396.71 (-333.25) Vol 478 m Markt Cap Rs.8,160 T
Thursday : KSE-100 46,625.12 (228.41) Vol. 396M Market Cap Rs 8,170 T
Friday : KSE-100 47,198.29 (+573.17) Vol .427 m market Cap. Rs.8,255 T
Participants /Activity
Foreigners were net seller $18.62m during the week ;companies were seller by $0.48m, Banks were seller $4.65m ; Mutual fund net seller$2.60m individuals net buyer $12.86m and Insurance were buyer $6.20m
Volume leaders during the were: TPL Corp 158m; Telecard Ltd133m; WorldCall Telecom102m; Ghani Glo Hoi 92m; Services Fab ( R ) 86m; PIA A . C (A) 62m;Azgard Nine 55m; Kohinooor Spinning34m; Maple Leaf 27 m ; Byco Petroleum 24m and PTCL 23m
Participants: Companies Av.496 Gainer 2202 Loss 274 and Unchanged 20
Triggers.
-Reserve falls $123 m to $20.022 bn during the week ended on Spt.3 due to external debt payments. The Forex holding of the commercial banks were $7.080 bn while the country’s overall reserves fell by $125m to $27.102 bn during the week
-The country received $5.364 bn during the first two months of the fiscal year 2021-22 showing growth of 10.4 p compared to the same period FY21 when inflows was $4.859 bn.
-Dollar hits 13-month high as it was traded Rs.168.02 on Friday
-Banks okay Rs.59bn loans under govt’s housing scheme. Appliction for a cumulative Rs,154 bn had been since last year and over Rs. 59 bn has been approved till August 31 this year.
-The foreign exchange inflows through Roshan Digital Account (RDA) has rached $2.114 bn at the end of August.
-The State Bank of Pakistan will announce the monetary policy on Sep 20. The interest rate has remained unchanged for more than a year while inflation is higher than the interest rate . The interest rate is therefore negative.
Conclusion
The slight damage of MSCI’s downgrade of Pakistan Index to Frontier market from Emerging Market was fully accommodated by Individuals and Insurance sector.
Pakistan has weight of 0.02 in the MSCI Index while the down grade to FM would improve its weight to 1.9pc in the smaller market. . The reclassification would be a blessing in disguise as it would provide Pakistan access to larger foreign funds .
EFG ,the leading financial services company ,maintained ” we forecast the downgrade will mean passive outflow from EM trackers of$152 m . The out-flow from three related stocks would amount to $110 m from Lucky Cement, HBL and MCB while the remaining$42m would come from 13 small-cap stocks . Pakistan currently accounts for only 2bps of the MSCI EM Index .Foreigners have sold net $61m since MSCI announced in consultations on Pakistan’s downgrade in late June ;they have now sold net $157m YTD.”
Raees Uddin Khan
Research & Development
Institute of Securities Management Research & Training (Pvt) Ltd
Karachi