Morgan Stanley downgrades Pakistan to Frontier Market

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Morgan Stanley Capital International (MSCI) has announced to reclassify the Pakistan Indexes from Emerging Markets to Frontier Markets in one step.
Pakistan was downgraded from its status as an emerging market, a little over four years after it was reclassified from the Frontier Markets (FM) Index by the MSCI.
The announcement, made early Wednesday morning, will not surprise market followers, however, that expected the decision after MSCI, whose indexes are tracked by global investors to make investment decisions, said in June that it would begin consultation on a proposal for Pakistan’s reclassification, local media reported.
“MSCI Inc. (NYSE: MSCI) announced that it will reclassify the MSCI Pakistan Indexes from Emerging Markets to Frontier Markets,” it said in a press release.
“This conclusion follows feedback received from market participants from its recent consultation. MSCI will reclassify the MSCI Pakistan Indexes from Emerging Markets to Frontier Markets in one step, coinciding with the November 2021 Semi-Annual Index Review (SAIR),” the release added.
“Based on a simulation using pro forma data as of August 31, 2021, this would lead to the inclusion of four securities in the MSCI Frontier Markets Index with an estimated index weight of 1.90%.”
The MSCI said that while the Pakistani equity market meets the requirements for market accessibility under the classification framework for Emerging Markets, it no longer meets the standards for size and liquidity.
“Since the November 2019 SAIR, there have been no securities in the MSCI Pakistan equity universe that meet the Emerging Markets size and liquidity criteria within the MSCI Market Classification Framework.”
Since the November 2019 SAIR, there have been no securities in the MSCI Pakistan equity universe that meet the Emerging Markets size and liquidity criteria within the MSCI Market Classification Framework.
Pakistan was promoted from a frontier nation to the status of an emerging market in June 2017 after it convinced global investors of its economic reforms and market access.
Fast forward to 2021, a gradual reduction in market capitalisation of the companies listed on the MSCI Pakistan EM Index has eventually landed it in the same position it was in four years ago — the FM Index.

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