MCB added to MSCI Frontier Market Small Cap Index

MSCI in its semi-annual review announcement on November 10, removed MCB Bank (MCB) from main FM Index and added it to MSCI frontier market Small Cap Index. Pakistan has now only two constituents left in MSCI FM index which are Lucky Cement (LUCK) and Oil and Gas Development Company (OGDC).

MSCI did not notify Pakistan's weight in MSCI index but it is now estimated at 0.7 percent, Umair Naseer at Topline Securities said. The changes to MSCI Frontier Market index will be effective from November 30, he added.

As per MSCI market classification framework, size and liquidity requirements for the constituents of Frontier Market Index include full cap market size of $1.0 billion; free float market capitalization of $91 million, and 2.5 percent of Annualized Traded Value Ratio (ATVR).

To recall, Pakistan was reclassified into MSCI Frontier Market from Emerging Market last year in November 2021. As per MSCI, Pakistan market had met the requirements for market accessibility under the classification framework for Emerging Markets however it no longer met the standards for size and liquidity which led to reclassification. Initially, MSCI had classified three (03) constituents from Pakistan which included Habib Bank (HBL), Lucky Cement (LUCK) and MCB Bank (MCB) in the main index.

However, in its last index review in May 2022, MSCI added OGDC in the main frontier market index and also removed HBL from the main index. With addition of MCB into MSCI FM small cap index, the small cap index has now a total of 18 constituents which include BAFL, EFERT, ENGRO, EPCL, FFC, HBL, HUBC, INDU, MARI, MCB, MTL, POL, PPL, PSO, SEARL, SYS, TRG and UBL.

"We do not expect any major inflow/outflow from the development as stock market will continue to be dependent on Pakistan macro outlook and political developments."