The Global X MSCI Pakistan ETF (NYSEArca: PAK), the lone exchange traded fund dedicated to Pakistani equities, surged earlier this week after index provider MSCI said it is elevating the country’s equity market to emerging markets status from the frontier markets classification.
Although the promotion was widely expected and is now known throughout the investment community, some market observers see significant upside ahead of Pakistani stocks, including some of the names found in PAK.
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MSCI said the MSCI Pakistan Index will be reclassified from frontier at its May 2017 semi-annual index review and the country will receive a 0.14% tilt in the MSCI Emerging Markets Index.
“Credit Suisse thinks that Pakistan could take a page from the United Arab Emirates and Qatar, which rose more than 45% in the 12 months after gaining inclusion in the MSCI EM index,” reports Dimitra DeFotis for Barron’s.
Pakistan is the first country since Qatar and UAE in 2013 to earn the frontier-to-emerging promotion. Following previous MSCI upgrades, the United Arab Emirates and Qatar saw their benchmarks jump by at least a third in the 12 months following June 2013.
[related_stories]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.
Related: Pakistan ETF Surges on EM Promotion
Prior to the debut of PAK, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) was the ETF with the largest Pakistan exposure. Pakistan is currently FM’s third-largest country weight behind Kuwait and Argentina.
“Despite the low presence in the EM world (vs 8.9% in MSCI FM), we expect the market to attract a lot more attention from EM dedicated funds (estimated net inflows of about $400 million) given the huge chunk of assets under management benchmarked to MSCI EM stood at $1.5 trillion (as of December 2015) versus about $15 billion for frontier markets,” according to part of a Credit Suisse note posted by Barron’s.
For more information on Pakistan, visit our Pakistan category.
Global X MSCI Pakistan ETF
