Author: Shahnawaz Akhter

In a significant development for Pakistan’s financial market, MSCI has announced the inclusion of National Bank of Pakistan (NBP) in its Frontier Market Index during the May 2024 index review.

The addition of NBP marks a notable milestone for Pakistan’s banking sector and underscores the country’s growing prominence in frontier market indices. According to Mohammad Sohail, CEO of Topline Securities Limited, the inclusion of NBP, along with an increase in the free float market capitalization of existing 20 constituents by approximately 12%, is expected to boost Pakistan’s weight in the Frontier Market Index by 30-40 basis points, reaching 4.0-4.3%.

Furthermore, Pakistan’s weight in the MSCI Small Cap Index is also anticipated to rise, despite no additional scrips being added to the index. This increase is attributed to the impressive performance of existing 56 constituents, which have delivered a remarkable 16% return in USD terms since the last review in February 2024, compared to a 5% decline in the MSCI Frontier Market Small Cap Index. The estimated increase in Pakistan’s weight in the Small Cap Index is projected to be in the range of 50-60 basis points, reaching 3.4-3.5%.

Analysts estimate that the changes in the overall weight and the addition of NBP to the Frontier Market Index could lead to gross inflows of approximately US$30-40 million. This projection is based on an assessment of assets under management (AUMs) benchmarked to the MSCI Frontier Market Index, which currently stand at around US$10 billion, with a free float of US$119 billion.

Foreign investment activity in Pakistan’s equity market has been notable in recent weeks. Since May 2, 2024, foreign corporates have already purchased shares worth US$34.4 million and sold shares worth US$20.7 million. This buying pattern suggests a growing interest among foreign investors in Pakistani equities.

Looking ahead, it is anticipated that Pakistan will continue to attract foreign investment leading up to the implementation date of the index changes, scheduled for June 3, 2024. The partial influx of funds observed in recent weeks indicates that the market has already begun to factor in the anticipated inflows resulting from the MSCI index adjustments.

Overall, the inclusion of NBP in the MSCI Frontier Market Index reflects positively on Pakistan’s financial market and underscores its attractiveness to international investors. As Pakistan’s market weight increases in key indices, stakeholders remain optimistic about the country’s economic prospects and its ability to attract foreign investment in the long term.