Business | Investment
Pakistan risks key index expulsion
Pakistan's imposition of a floor under its main stock index could see it expelled from the benchmark MSCI emerging equities index while Colombia's recent easing of investment curbs could help the country remain in it, the index compiler's research head said on Tuesday.
- Agencies
- Published: 00:07 October 2, 2008
London: Pakistan's imposition of a floor under its main stock index could see it expelled from the benchmark MSCI emerging equities index while Colombia's recent easing of investment curbs could help the country remain in it, the index compiler's research head said on Tuesday.
The global head of index research at MSCI Barra said countries with curbs on the free flow of capital are likely to be downgraded to the "frontier markets" index, which covers economies with undeveloped stock markets.
"If capital controls are strict and prevent investors from moving in and out, that country needs to leave the [emerging markets] index," Remy Briand said.
"Definitely the situation in Pakistan is not good."
Fund managers and other investors use MSCI's emerging markets index to benchmark their investments, and removal from the index can exclude companies or markets from capital flows due to fund regulations.
The Karachi Stock Exchange imposed a floor on its benchmark 100-share index on August 28 as part of a series of steps taken by authorities there to protect share prices.
Colombia, along with Argentina, is among the countries with capital controls that MSCI said previously could be removed from the Emerging Markets Index as part of a wider consultation expected to end by December.
Briand said the outlook on Colombia had changed after the country lifted restrictions on foreign portfolio investments in shares on September 1.
"We are monitoring the situation but it's a positive development. If there are no capital controls, there is no reason why we should transition Colombia to frontier markets," he said.
MSCI is also seeking investor opinion for its proposal to move Israel and South Korea to its developed market indexes, which have access to a wider pool of investment funds than emerging markets.
Rival index compiler FTSE Group last year promoted Israel to developed market status and will do the same for South Korea from next September.
Briand said MSCI would make its decision on the status of Israel and South Korea no later than June 2009 to give fund managers sufficient time to adjust their portfolios.
Judging by feedback from investors, geopolitical risk was no longer a decisive factor in whether a country is seen as a "developed market", Briand said.
"In aggregate, people look at the country's economic growth, market size, liquidity and accessibility. Political risk is something hard to measure," he added.
MSCI on Tuesday launched an index that would include smaller countries in its emerging markets benchmark and all markets in its frontier markets index.
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