Re­clas­si­fi­ca­tion on the cards for some

The Star Early Edition - - BUSINESS REPORT - Bloomberg

THE STOCK mar­kets of the world’s de­vel­op­ing economies are about to un­dergo a kind of a rev­o­lu­tion.

As in­dex provider Mor­gan Stanley Cap­i­tal In­ter­na­tional (MSCI) pre­pares to carry out its an­nual review in June, some of the world’s big­gest and best-per­form­ing eq­uity mar­kets – with as­sets to­talling al­most $9 tril­lion (R118trln) – are poised for re­clas­si­fi­ca­tion.


MSCI down­graded Pak­istan from an emerg­ing mar­ket to a fron­tier na­tion in 2009 af­ter it im­posed a floor on the stock in­dex to curb ex­ces­sive sell­ing dur­ing the fi­nan­cial cri­sis. The mar­ket’s size has since grown about five fold.

The na­tion be­gan trad­ing as an emerg­ing mar­ket yes­ter­day. In­vestors ex­pect it to have a 0.2 per­cent weight­ing in the MSCI Emerg­ing Mar­kets In­dex, and get any­where be­tween $300 mil­lion to $550m in in­flows from tracker funds.

Pak­istan’s econ­omy may grow about 5 per­cent this year, ac­cord­ing to Mat­tias Martins­son, the Stock­holm-based chief in­vest­ment of­fi­cer at Tun­dra Fon­der, which holds about $150 mil­lion in Pak­istani stocks.

Saudi Ara­bia

Two years af­ter the king­dom opened its stock mar­ket to global in­vestors, for­eign own­er­ship has lan­guished at about 5 per­cent and the eq­uity in­dex has lost about 30 per­cent. The mar­ket’s size fell by roughly $140 bil­lion as the changes co­in­cided with the gov­ern­ment’s aus­ter­ity mea­sures.

As part of its plan to re­vamp the econ­omy and re­duce de­pen­dence on oil rev­enue, Saudi Ara­bia is now seek­ing in­clu­sion in MSCI’s emerg­ing-mar­ket gauge. The coun­try says its bourse has met all the cri­te­ria, and there are now enough in­sti­tu­tional in­vestors to give the in­dex provider feed­back on the in­vest­ment process.

The coun­try in­tro­duced short sell­ing and will prob­a­bly add a range of so­phis­ti­cated fi­nan­cial prod­ucts. An ini­tial pub­lic of­fer­ing by state-run Saudi Aramco may pro­vide the break­through the coun­try has been look­ing for in terms of for­eign­ers’ in­ter­est.


The coun­try, strug­gling to re­store in­vestor con­fi­dence in its cur­rency, has seen its bench­mark stock in­dex lose more than 30 per­cent in dol­lar terms over the past 12 months. MSCI is con­sid­er­ing whether to down­grade Nige­ria from a fron­tier na­tion to a stand­alone mar­ket.

In­vestors are giv­ing a thumbs up for a for­eign-ex­change win­dow that started in April, which al­lows them to repa­tri­ate funds or value their naira hold­ings at rates more closely aligned to the in­for­mal mar­ket. A US ex­change-traded fund fo­cus­ing on Nige­ria has seen in­flows af­ter the start of the new mech­a­nism.

In­vestors are now mak­ing a case for MSCI to use the price of the naira on the win­dow to value stocks in­stead of the tightly con­trolled in­ter­bank rate.

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