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February 16, 2020

MSCI Upgrades Pakistan’s Ranking to Emerging Markets

Pakistan has gained re-entry to Morgan Stanley Capital International (MSCI) index, one of the world’s most popular emerging market indices which is tracked by $1.5 trillion global funds.

The re-classification of South Asia’s second-largest economy from frontier markets to emerging markets will help the country attract the much needed foreign investment that has dried up due to security situation in Pakistan.

The country is one of the most worst-hit by the global terrorism since the  9/11 attacks when it joined the U.S.-led war on terrorism.  Al-Qaeda-linked Pakistani militants and Afghan Taliban have killed more than 60,000 people, and have inflicted economic losses to the tune of nearly $200 billion, according to the country’s finance minister.

Deteriorating investment climate as a result of wave of terrorist attacks and political instability led to Pakistan’s removal from the MSCI market index in 2008.

MSCI analyzes and seeks feedback on markets under review for potential market reclassification and conveys its ranking every June after discussions with the international community.  According to the decision, Pakistan will be upgraded to Emerging Markets in May, 2017.

Pakistan’s upgradation has been descried as “biggest winner of the 2016 MSCI Market Classification Review” by the French Bank Natixis which forecasts its firms and index to get the capital market inflows, which it would not have attracted otherwise as a Frontier Markets.

After years of sluggish growth which averaged around 3 percent between 2008-13, Pakistan’s economy gained the upward trajectory after Prime Minister Nawaz Sharif’s government  took over  after a landslide victory in 2013’s general election.  Pakistan ‘s economy is projected to grow by 4.25 percent in the year ending June 30.

With a  more liberal investment environment which offers no limitation on foreign ownership, or on profit repatriation, the new classification make Pakistan an attractive destination for foreign inflows into its stock markets and firms.

The MSCI decision is a “reflection of our prudent economic policies and strong financial discipline,” said Prime Minister Sharif while speaking at an event in Islamabad. Pakistan’s benchmark 100-stock index has gained more than 90% since the 2013 elections.

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