Pakistan set to join MSCI Emerging Markets ETFs

May 17th, 2017 | By | Category: Equities

Index provider MSCI has re-confirmed the upgrade of Pakistan from frontier market to emerging markets status following the firm’s latest market reclassification review. The move will see Pakistan rejoin the bellwether MSCI Emerging Markets Index, tracked by several large ETFs in Europe including the giant iShares Core EM IMI UCITS ETF (LON: EIMI).

Pakistan MSCI

Pakistan will be included in the MSCI Emerging Markets Index as of the market’s close on 31 May 2017.

Pakistan was removed from the MSCI Emerging Market Index in December 2008 due to the temporary closure of the then Karachi Stock Exchange; it was subsequently maintained as a standalone country index. In May 2009, MSCI included the country in the MSCI Frontier Markets Index.

The inclusion of the country back into the MSCI Emerging Markets Index, which was initially announced in May 2016 and re-confirmed in the latest review, will take effect as of market close on 31 May 2017.

According to MSCI, its semi-annual market reclassification assessment is intended to enhance the comparability of countries’ market accessibility levels across investment universes, serve as a tool for international institutional investors to better track the evolution of market accessibility in individual countries, and inform regulators of the areas perceived as not meeting international standards.

The decision to upgrade Pakistan from frontier markets status is expected to generate inflows in the range of $200-500 million, according to JS Global Research, as over $1.5 trillion in global fund assets tracking the MSCI Emerging Markets Index look to adjust their exposures. In anticipation of the inflows, the local KSE-100 Index has been buoyed 6.6% higher year-to-date.

European ETF investors wishing to gain exposure to Pakistan’s equity market can look to Deutsche Asset Management and the Xtrackers MSCI Pakistan IM Index UCITS ETF (XBAK). The fund, which trades on the London Stock Exchange in US dollars and Xetra in euros, tracks a modified version of the MSCI Pakistan Index that accounts for market investability. The fund’s all-in fee is 0.85%.

This index currently has 38 constituents with significant exposure to the financials (34.4%), materials (28.4%), energy (17.5%), utilities (6.5%) and consumer discretionary (6.2%) sectors. The largest holdings are Habib Bank (11.7%), Lucky Cement (11.3%), MCB Bank (8.9%), United Bank (8.4%) and Oil & Gas Development (6.8%).

There are several ETFs listed in Europe which track the MSCI Emerging Markets Index including funds from providers HSBC, Lyxor, Source (recently acquired by Invesco), SPDR ETFs, iShares and UBS.

The iShares Core EM IMI UCITS ETF (LON: EIMI) is the largest, with AUM of $5.7bn and is also significantly cheaper than most of the other ETFs at fees of 0.25%, although the UBS Emerging Markets UCITS ETF (SIX: EGUSAS) comes closest to competing on price with fees of 0.32%; its AUM is $2.3bn.

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