Pakistan ETF Could get a Lift From EM Upgrade

The Global X MSCI Pakistan ETF (NYSEArca: PAK) has traded modestly lower since coming to market in late April, but the lone Pakistan could build on recent gains that have seen the fund jump 3.2% over the past month.

While all of the commotion in the indexing world has recently focused on MSCI’s classification of China’s A-shares equities, the index provider said Tuesday it has placed Pakistan on review for possible upgrade to emerging markets status. If such a move happens for Pakistan, it would take place part of MSCI’s 2016 annual market classification review, according to a statement from the index provider.

Pakistan, ranked the world’s 44th-largest economy by nominal GDP last year by the International Monetary Fund (IMF), is classified as a frontier market. Prior to the debut of PAK, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) was the ETF with the largest Pakistan exposure. FM currently allocates 10.4% to Pakistan, making the country the ETF’s fourth-largest country weight.

Pakistan was demoted to frontier status in 2009 after its equity market was closed to sellers for over 100 days during the 2008 global financial crisis, according to news reports. However, Pakistan’s benchmark Karachi Stock Exchange 100 Index has since been one of the best-performing equity benchmarks in the world. [Pakistan set to be a Bigger Part of This ETF]

Despite its frontier status, Pakistan meets most of MSCI’s requirements for emerging markets classification, but if the country earns the emerging markets upgrade, the number of holdings in the MSCI Pakistan Index could drop to six from 16.