Stock Market Gears Up for MSCI Inclusion Day

With only two days remaining before the Pakistan Stock Exchange (PSX) gets granted MSCI status, the market and major brokerages are preparing themselves for a large inflow of foreign funds.

The foreign inflows may potentially start coming in today, but experts suggest that on Wednesday it may well hit its peak – possibly in the last hour of trading – as MSCI-tracking passive funds start entering through the local bourse.

According to Bloomberg; MSCI Boost May Give Pakistan Market $500 Million: EFG-Hermes Holdings SAE expects Pakistani equities to be so popular with overseas funds this week that the country’s stock market could attract more money than it can handle the day before MSCI Inc. restores the nation to emerging-market status.

As much as $500 million may gush into the nation’s equities on May 31, said Ali Khalpey, chief executive officer frontier markets at the Cairo-based investment bank. “It’s a big number and there isn’t enough capacity in the system to handle the volume and value we expect.”

“We have worked with similar investors when Qatar and the United Arab Emirates were upgraded by MSCI. The flows won’t be staggered. Tracker funds have to execute on the day.”

Immediate inflows of $300-500m is expected from passive funds on June 1 after the country’s reclassification by MSCI.

There is some nervousness on part of market watchers who wonder if the PSX can handle such large volumes of traded value amounts, given as how the market at present handles just $150 million. As per estimates of players in the market, the gross amount of inflows is likely to be five to six times the PSX daily turnover.

International passive funds are likely to invest in the Pakistan market according to its weight in the MSCI Index. In contrast, active funds may invest at leisure.

Trading Sessions Extended

PSX has extended the duration of trading sessions by 15 minutes. The additional 15 minute-session has been named as the Post-Close Session. The post close trading session is used to accommodate expected hike in trading activity. It is similar to after hours trading in developed markets, the securities are traded at a fixed price i.e. their respective closing prices after regular market hours, the analyst added.

The stock market has also changed formula to calculate the closing share price for a brief period from May 26 to June 2, 2017. The closing price for all shares shall be the average price of the last two hours.

SECP has approved measures as proposed by PSX, NCCPL and other market stakeholders for a seamless transition to MSCI.