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Pakistan stocks boost after qualifying for MSCI Emerging Markets Index

Pakistan stocks boost after qualifying for MSCI Emerging Markets Index

Analysts and brokers in Pakistan said inclusion in emerging markets group will lead to significant foreign investment inflows, considering the size of the index

Pakistan Stock Exchange’s benchmark index surged 2.78%, or 1,042 points, to close at a record of 38,559.87 points on Wednesday after Pakistan managed to qualify for the key MSCI Emerging Markets Index.

Asia’s best-performing share market of 2016 could attract about $220 million of inflows, JPMorgan Chase & Co. said in a note following MSCI’s decision late Tuesday in New York. BMA Capital Management Ltd. sees Pakistan luring $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.

Analysts and brokers in Pakistan said the decision to upgrade the country to the emerging markets group will lead to significant foreign investment inflows, considering the size of the index. Funds with assets worth $1.5 trillion track the MSCI Emerging Markets Index. Brokers said the upgrade is likely to attract other investors too, considering Pakistan’s stable macroeconomic indicators and steady growth at the stock exchange.

“Pakistan is moving into acceptance: the nation has what it needs, a decently functional state and decent stability,” Mattias Martinsson, the Stockholm-based chief investment officer at Tundra Fonder, which holds $200 million of Pakistani equities, said before the announcement.

The Karachi Stock Exchange KSE100 Index has gained 15 percent this year, making it the best performer in Asia.

Karachi is Asia’s best performing stock market this year and stocks leapt to a record high on Wednesday on the back of MSCI’s decision.

Pakistan also boasts better fundamentals in some regards.

EFG Hermes said last month an upgrade could lure around $475 million of inflows by mid-2017. Pakistan has a “70 percent chance” of being promoted, according to Tundra Fonder, a fund manager specializing in frontier markets.

The country’s benchmark index rallied the most in five weeks before MSCI’s decision due late Tuesday in New York.

“Pakistan is moving into acceptance: the nation has what it needs, a decently functional state and decent stability,” said Mattias Martinsson, the Stockholm-based chief investment officer at Tundra Fonder, which holds $200 million of Pakistani equities.

“We have a pretty fair chance,” said Farid Ahmed Khan, the Karachi-based chief executive officer at ABL Asset Management Co.

Why Pakistan got MSCI’s Emerging Markets Index approval and China didn’t

Despite its stock market being one-hundredth the size of mainland China’s, Pakistan has managed to qualify for the key MSCI Emerging Markets Index while its larger Asian neighbor, China, has not qualified.

On paper, its inclusion may appear a big snub to China but many don’t realize that the Karachi Stock Exchange runs a more open market, one that gives foreign investors easier capital mobility, explained noted Adrian Mowat, managing director and Chief Asian and emerging market equity strategist at J.P. Morgan.

“The Pakistani market has no limitations on foreign ownership, no controls. People can bring in money and take it out,” said Saad Hashemy, chief economist at Topline Securities, a Karachi-based brokerage. “Over the years, liquidity in the Pakistani market has improved tremendously. That’s the key reason.”

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