In emerging market stocks none of the five companies of Pakistan (HBL, OGDC, MCB, UBL & LUCK) that are part of standard Morgan Stanley Capital International’s (MSCI) EM index (Large & Mid cap) meet the free float requirement as per previous day’s closing, according to analysts.
Among five companies, HBL & OGDC barely meet the criteria while MCB, UBL & LUCK fall far behind in meeting the requirement. To note, Pakistan’s current weight in MSCI EM index is estimated at 0.06 percent.
MSCI is going to announce its Semi-Annual Index Review on November 13, 2018 (effective from Dec 3, 2018), which will be based on its framework for a country under three set rules 1) Economic Development, 2) Size and Liquidity Requirements and 3) Market Accessibility Criteria, as per our understanding. The price cut-off for the upcoming index review will be any one of the last 10 business days of October 2018.
For a country to be in MSCI Emerging Market (EM) index, at least three of its companies have to meet aforesaid benchmarks. While two criteria (Economic Development & Market Accessibility) are subjective, Size & Liquidity requirement for a company can be gauged through 1) Free Float, 2) Full Mkt Cap and 3) 15 percent Annualized Traded Value Ratio (ATVR) and the company has to meet all three quantitative criteria (Free Float, Full Market Capitalization and ATVR) to be part of standard MSCI EM index.
MSCI’s current threshold for Free Float and Full Mkt Cap. requirement is $797 million and $1594 million, respectively. However, the market cap requirement is reviewed semi-annually and the analysts believe that the upcoming review will be based on revised market capitalization.