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FTSE inclusions are a precursor to MSCI EM upgrade

• Six Pakistani companies are to be included in the FTSE Global Equity Index Series from today but it appears bulk of demand may already have arrived. On Friday, average volumes in these names were 3-5x higher than the 6m average and gross FPI activity of US$141mn was equivalent to almost 20% of foreign activity recorded in February.

• We think Friday is a precursor to what may happen come MSCI upgrade day. As Qatar/UAE upgrades further corroborate, demand from MSCI EM tracker funds may materialize inside a few days only. Although normal activity levels imply MSCI related flows may come in over a few weeks, recent precedence suggests otherwise.

• Interestingly, there was net FPI outflow on Friday (-US$5.0mn) with FTSE-related foreign demand met by foreign sellers. Considering several of the main MSCI EM Pakistani stocks have significant foreign shareholding, we think our estimated demand of US$300-400mn (passive only) may not necessarily translate fully into net FPI inflow come EM upgrade day.