By Faiza Tehseen Islamabad, Feb. 22 (INP-WealthPK): The Morgan Stanley Capital International (MSCI) downgraded Pakistan’s status from an emerging market to the frontier market in December 2021 after the Pakistan Stock Exchange (PSX) index touched the highest level of 53,000 points in 2017 but failed to meet the standards for size and liquidity. The MSCI decision took effect from December 1, 2021. It is expected that comparatively higher weight in the frontier market (FM) would highlight the PSX in the eyes of global investors compared with its negligible size in the emerging market (EM). Pakistan was a part of the MSCI emerging market index from 1994 to 2008. But the momentary closure of Pakistan Stock Exchange removed Pakistan from MSCI index and positioned it in “Standalone Country Index”. In 2009, Pakistan was again made a part of MSCI index as the frontier market.  According to an MSCI statement, Pakistan’s equity market meets the requirements to be called as an emerging market (EM), but is little behind the standards of size and liquidity. The said decision was expected after the gradual fall of Pakistan from the terms & criteria of EM according to MSCI after its promotion as EM in 2017. This situation shook the foreign investors, as they sold more than US$ 1 billion shares with the fall of bench mark KSE-100 Index to 12% in 2017. In order to analyse Pakistan’s capital market position after getting the FM status, WealthPK interacted with Zahid Latif Khan, Chief Executive Officer of Zahid Latif Khan Securities (PVT) Ltd. Sharing his views, Zahid Latif said, “Pakistan has got the lesser grade of frontier market (FM) from the title of emerging market (EM). Multiple factors acted behind this. Pakistan Stock Exchange (PSX) has lost its benchmark position of top-ranking points. Pakistan’s mutual funds pie shortened. Current Account Deficit is another cause. Though losing the EM title is embarrassing, it can be called a blessing in disguise.  Experience tells that the frontier market has more potential to grow.’’ Zahid said investors liked to invest US$1 in FM rather than investing half of it in the EM. “Leverage ratio of FM attracts more investors than the EM. Capital market always grows when there is good leverage. Being FM, Pakistan’s capital market has got a potential opportunity. It is a good time for investors to pick their chunk”. To know more, Wealth-PK interviewed Askari Securities Limited equity head Muhammad Azhar Khan. Azhar said, “This month (Feb 2022), the MSCI decided to retain Pakistan’s frontier market status.” He said though Pakistan was downgraded to the FM status, investors took it as a blessing in disguise and they continue to invest in the PSX. It is a positive sign. Although this decision shook the market in the beginning, the situation is getting better now. Now, the stock market is regaining its position and it is expected that soon it will be back on its bench mark tracks”. Lucky Cement Limited, Muslim Commercial (MCB) Bank limited and Habib Bank Limited (HBL) are the only three Pakistani stocks included in the MSCI Pakistan Index but none of them has met the size or liquidity criteria since 2019. The MSCI, EM index has three constituents from Pakistan, while the FM index is simulated to have four constituents i.e., Lucky Cement, MCB Limited, HBL and Oil & Gas Development Company Limited (OGDCL) as the fourth additional constituent. Few more companies – Indus Motors Company Limited (INDU), Bank Al Habib Limited (BAHL), Abbot Laboratories Pakistan Limited (ABOT), National Bank of Pakistan (NBP), Systems Limited (SYS), and Packages LTD (PKGS) – have enlisted them as the FM constituents. Unfortunately, these companies could not prove compatible. It is worthy to note that OGDCL as a fourth big constituent was not part of the MSCI’s chart of January 31, 2022 although it was one of the companies qualified for the FM market. According to market experts, Pakistan can benefit from the MSCI’s decision, as it keeps little competent strength in the MSCI Frontier Market (FM). Pakistan can be forecast to be a part of the EM stream in a short period of time. Talking to Wealth-PK, Sana Ullah Khan, Regional Sales Manager (North) of Askari Securities Limited, said, “It is a fact that mostly (90-92%) a large number of active global investors track frontier markets due to their growth potential. It is Pakistan Stock Exchange’s pride that still they keep the trust of local and foreign investors. FM is a potential status to get more business. So, Pakistan must take it positively due to a potential space”.