US analytics firm MSCI is going to include Pakistan into Emerging Markets index, upgrading it from the frontier market status which was granted to it about a year ago. The decision is expected to push inflows of global portfolio investment of around$500 million in the country by the middle of 2017. According to experts, the MSCI indices are used by international institutional investors to create balanced portfolios and generate maximum returns. However, the firm is not ready to allow entry of China and Vietnam into the world’s most popular emerging markets equity indices. Earlier, MSCI had announced Pakistan’s possible inclusion in the Emerging Markets index following possible improvements in transparency and liquidity situation. The new status will pave the way for more investment into the country on the basis of better economic performance. Pakistan had been part of the Frontier Markets Index since May 2009 and was earlier part of the MSCI EM Index between 1994 and 2008. The country was removed from the index after temporary closure of the stock exchange.
The news reports suggest the country’s weight in MSCI Frontier Markets Index is 9 percent with as many as 16 companies doing good business. However, despite smaller weight in terms of percentage, the reclassification of the status is likely to attract funds from the frontier and emerging markets. The Pakistan Stock Exchange index has already gained 15 percent growth in value and has emerged as the best performer in Asian equity market. Vietnam, which is emerging as the new Asian Tiger, still holds the Frontier Market status despite political stability and positive sentiments in its economy, especially best performance in its manufacturing sector. Vietnam is almost twice the richer than Pakistan with regard to its per capita income. MSCI has also rejected to include China in the Emerging Markets for the third timeon the grounds that foreign investors can only repatriate 20 percent of their funds from China a month.
The Pakistani government will have to tread on a cautious path as the stock exchange is a kind of gambling and the nation should not be placed on the mercy of the foreign investors. Earlier in 1994, the foreign investors had syphoned off half of the capital of the Malaysian stocks and the entire South-East Asian economies were plunged into recession. However, the countries recovered due to strong industrial base and strong economic policies. Pakistan needs real investment in industrial sector and only solid policies can ensure solid economic development in the country. Investment in the equity market is always a tricky matter.