Key Takeaways:
– Pakistan downgraded to frontier market status by FTSE Russell.
– Downgrade likely to cause significant outflows from the nation’s equities.
– Decision comes into effect on September 23.
– Pakistan previously lost its emerging-market status at MSCI Inc in 2021.
– Recent gains in Pakistan’s KSE-100 Index due to an IMF loan deal.
Bloomberg, a global financial services, software, and media company renowned for its business and market news, data, and analytics, recently reported on a significant development regarding Pakistan’s financial market. In an article, Bloomberg shared insights into Pakistan’s recent downgrade by FTSE Russell.
FTSE Russell has lowered Pakistan to “frontier market status” from its previous standing as a “secondary emerging market,” a move that is expected to trigger millions of dollars in outflows from the country’s equities. According to Bloomberg, this decision was driven by Pakistan’s failure to meet the “minimum securities count requirement” needed to maintain its current market status.
Despite a recent rally in Pakistan’s benchmark KSE-100 Index, which Bloomberg attributes to a loan deal with the International Monetary Fund (IMF), the market’s performance was not enough to prevent the downgrade.
Debt issues and ongoing political instability have created volatility in Pakistan’s stock market over the years, which has significantly eroded market capitalization. Bloomberg pointed out that Pakistan had already lost its “emerging-market status at MSCI Inc in 2021,” just four years after it was upgraded, due to the market’s shrinking size and liquidity.
Despite a recent rally in Pakistan’s benchmark KSE-100 Index, which Bloomberg attributes to a loan deal with the International Monetary Fund (IMF), the market’s performance was not enough to prevent the downgrade. Bloomberg noted that “the KSE-100 Index has surged from a low last year, outperforming most global peers in the past 12 months,” thanks to the IMF agreement. However, FTSE Russell had already placed Pakistan on its watchlist for a possible downgrade in its September review, citing a steady decrease in the nation’s index weight and a drop below the required “minimum investable market capitalization.”
This change will officially take effect on September 23, marking a significant shift for Pakistan’s market and potentially impacting investor sentiment and financial flows into the country.
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