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Team AKD Research
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Pakistan Strategy_MSCI Review_Back to Frontier Market, (AKD Daily, Sep 08, 2021)

AKD Daily

Pakistan Strategy: MSCI Review - Back to Frontier Market

  • A move that was widely anticipated, MSCI has officially downgraded Pakistan from MSCI EM index to MSCI FM index, thus bringing an end to country’s 4yr long stay in the EM index. The decision was announced in the early morning hours and followed feedback received from market participants over reclassification.
  • The transition from EM to FM index will be a one step  process and will coincide with Nov’21 Semi-Annual Index Review (SAIR).  Simulated results show that this would lead to the inclusion of four securities in the MSCI Frontier Markets Index with an estimated index weight of 1.90%.
  • Market dataflow suggests that total AUMs in EM currently stand at US$1.8trn whereas the total AUMs of FM currently stand at US$15bn. Therefore, given the weight Pakistan had in EM and likely weight it will have in FM, the net outflow will settle around US$70mn—US$80mn. Further flows may be unlocked  upon classification in MSCI FM 100 index and 15% Country Capped Index.
  • Market might take a knee-jerk reaction in the immediate aftermath of the classification but the reclassification comes with a potential silver lining owing to Pakistan’s increased weight in FM index (~1.9%) and FM100 index (~5.5%) as opposed to a cumulative weight of 2bps in MSCI EM index. Once the early jitters subside, the benchmark may post a solid price performance on the back of strong fundamentals (D/Y: 7.8% and PER: 5.7x).

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Underlying
National Bank of Pakistan

National Bank of Pakistan (the Bank) is a Pakistan-based commercial bank. The Bank provides commercial banking services, including commercial loans, investment advisory, asset management, global remittances, agency services, forex, leasing, modarba, underwriting, brokerage, and other banking and financial services. The Bank offers retail products, which include saving deposits, current deposits, housing finance, personal loans and agricultural loans; transaction banking services, which include cash management, trade finance and services, and remittance management; Corporate Finance services, which include deposits, structured corporate finance, capital advisory, investment advisory and trade finance; Treasury services, which include forex and financial derivatives, and government to person (G2P) services, which include pension payments, tax and fee collection, and other payments. The Bank serves its customers in over 20 countries.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

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Team AKD Research

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