The Pakistan country-specific exchange traded fund surged Wednesday, with Pakistani markets touching a record high, after Morgan Stanley Capital International upgraded the former frontier economy to “emerging” status.
The Global X MSCI Pakistan ETF (NYSEArca: PAK) rose 5.6% Wednesday on over three times its average daily volume.
Meanwhile, the benchmark Pakistan Stock Exchange rose gained 1,003 points, or 2.7%, to hit a high of 38,520 by the close.
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“After a long time, Pakistan has been classified as an emerging market and that boosted investor sentiment,” Rehan Atiq, the chief operating officer of brokerage house Shajar Capital, told The News.
JPMorgan Chase & Co. said the market could attract about $220 million in inflows following MSCI’s decision, Bloomberg reports. BMA Capital Management Ltd., though, projects Pakistan to attract $300 million to $400 million in the first year while EFG Hermes Holding SAE said last month that an upgrade could attract around $475 million by mid-2017.
“When there is an upgrade, a lot of investors see passive inflows as an opportunity to basically reposition and benefit from the outperformance of the market,” Mohamed Al Hajj, an equity strategist at EFG Hermes, told Bloomberg. “The market tends to perform strongly until implementation. You should expect outperformance from Pakistan as well.”
Pakistan was previously downgraded to frontier status by MSCI in 2008 when the Karachi Stock Exchange set an index floor to halt a sell-off in the wake of then ruler Pervez Musharraf leaving office to avoid impeachment.
[related_stories]Since Musharraf’s departure, Prime Minister Nawaz Sharif has supported economic growth and achieved relative stability through an International Monetary Fund loan program that helped avoid an external payments crisis in 2013.
“This achievement is the result of macroeconomic stability, economic reforms and good governance by the incumbent government,” Finance Minister Ishaq Dar said in a statement. “The new status of emerging market will help Pakistan to attract maximum foreign investment.”
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. Muhammad Asim, chief investment officer at MCB-Arif Habib Savings & Investments Ltd., argued that the impact of the MSCI’s move has not been priced into Pakistan yet.
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The indexer 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.
For more information on Pakistan, visit our Pakistan category.
Global X MSCI Pakistan ETF