Morgan Stanley Composite International commonly known as MSCI has removed two companies from Global Standard Index to Small Cap Index while removed two companies Maple Leaf Cement and Honda Atlas which lead to selling eruption of around $50 million.
MSCI during its semi-annual review decided to remove Lucky Cement and United Bank from Global Standard Index and now these companies have been added to Small Cap Index. While Maple Leaf Cement and Honda Atlas have been removed from the list of Small Cap Index, the statement of the MSCI said.
Rebalancing in the indices would be effective from November 30.
Samiullah Tariq, director research at Arif Habib expected that Following the rebalancing of the companies the weightage of Pakistan would likely to be slipped to 0.040 percent from 0.066 percent, He added there is another possibility that due to these changes UBL might see foreign selling amount to 20 million dollars and in Lucky Cement amounting to 22 million dollars.
However, Pakistan still manages to retain its spot in emerging market classification where country’s large cap universe cut size to now Habib Bank, Oil Gas Development Company and MCB Bank.
According to the report overall it’s not Pakistan that see exclusion. Turkey witnessed 6 stocks deletions, Taiwan & Malaysia may see exit 4 stocks each and India’s lost 2 scrips.
While China presence in MSCI universe further strengthen as its 12 stocks added and only 10 deleted.
According to an analyst this review happened because of the speedy erosion in the Pakistan Stock Market index and which incorporated in the listed companies as well. On May 31st 2017 at time of upgrade, Lucky traded at Rs 960 per share and UBL Rs 260 share. Currently Lucky trading at 62 percent and UBL at 59 percent discounted price in dollars term from May 31st, 2017.
“Both stocks offer great values and already priced in their exclusion”, an analyst said.
“While we disregarded the market misconception that Pakistan may be completely downgraded from Emerging to Frontier Markets via this review, we however highlight that the next semi-annual review due in May-19 will be a key event to watch out for”, said Hamad Aslam, director research at Elixir Securities.
“What will be important to keep an eye out going forward would be the semi-annual review due in May-2019. Assuming no major changes in global markets, and hence the market cap cut-off being anchored at $1.4 billion, Habib Bank Limited (HBL) would be the most at risk. The stock’s market capitalization currently stands at %1.5 billion which means erosion of another 7 percent from its stock price and/or rupee-dollar parity would risk the stock’s exclusion from the EM Index.
MSCI requires at least three companies from a country to be included in the Index for a country to be qualified as Emerging Market, which means that potential removal of HBL in May-19 will open the chapter of a complete downgrade of Pakistan from Emerging Markets to Frontier Markets, Hamad explained.
