EUR 50.00 For Business Accounts Only

Pakistan Strategy: MSCI Annual Market Classification Review; Probability of Pakistan downgrade is low

• MSCI will be releasing the results of the MSCI 2020 Annual Market Classification Review on June 23, 2020. Announcement will be made available shortly after 10:30 p.m. Central European Summer Time (CEST), i.e. 1:30 a.m. Pakistan Standard Time (PST) on June 24, 2020.
• There will be no deletion or additions of constituents, as MSCI is likely to deliberate on status of different markets.
• Pakistan has been part of MSCI Emerging Market (EM) owing to the Index Continuity Rule since May-2019. MSCI states that such indexes may be discontinued, if no constituents are left, in accordance with MSCI GIMI methodology.
• The minimum criteria for EMs has been reduced to US$1,400mn total market cap and US$700mn float market cap.
• All the three constituents from Pakistan (OGDC, MCB and HBL) do not meet the minimum free-float capitalization criteria of US$700mn, while only OGDC meets the full market capitalization criteria of US$1,400mn.
• We believe probability of a downgrade of Pakistan is low given that MSCI may keep Pakistan under Index Continuity rule taking into consideration impact of COVID-19.
• In a worst case scenario, Pakistan is less likely to be imminently downgraded to FM, as MSCI is likely to involve a public consultation, before announcing any downgrade of Pakistan to FM.
• The Annual Market Classification Review is based on the MSCI Market Classification Framework. The framework consists of the following criteria:
• Economic development: Considers the sustainability of economic development and is only used in determining the classification of developed markets, given the wide range of development levels within emerging and frontier markets.
• Size and liquidity requirements: Determines those securities that meet the minimum investability requirements of the MSCI Global Standard Indexes.
• Market accessibility criteria: Aims to reflect international institutional investors’ experiences of investing in a given market and includes five criteria: openness to foreign ownership, ease of capital inflows / outflows, efficiency of operational framework, availability of investment instruments and stability of the institutional framework.
• In the MSCI Global Market Accessibility Review released on June 17, 2020, Pakistan’s view has been changed from “+” to “-/?” on clearing and settlement (see table on next slide).
• MSCI states that there is no nominee status and omnibus structures are not available. Overdraft facilities remain prohibited.
• There were five upgrades and three downgrades in the Emerging Markets.