(Bloomberg) — FTSE Russell has downgraded Pakistan to a frontier market from a secondary emerging market status, a move that could hit the country’s stock market and trigger millions of dollars in capital outflows.
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The South Asian country’s market did not meet the minimum number of securities requirement to maintain its current status, the index creator said in a statement on Wednesday, adding that the decision will take effect from September 23.
The development did little to dim optimism for South Korean shares, which have risen more than 30 percent this year with help from the International Monetary Fund and are Asia’s best-performing stocks in dollar terms.The benchmark KSE 100 index rose 0.7 percent on Thursday, setting a new record.
“FTSE’s decision was expected and there was no impact on the market,” said Mohammed Sohail, chief executive officer of Karachi-based Topline Securities. “Investors are hopeful that the IMF’s long-term funding will stabilise the economy and enable Pakistan to overcome its economic challenges.”
Debt concerns and political turmoil have made Pakistani stocks volatile over the years, causing market capitalization to fall. Pakistan lost its emerging market status by MSCI Inc. in 2021, just four years after it was upgraded, due to a shrinking market size and liquidity.
The benchmark KSE-100 index has soared from last year’s lows and outperformed most of its global peers over the past 12 months, helped by a loan deal with the International Monetary Fund.Still, FTSE Russell put the country on a watch list for a possible demotion to a frontier market in a September review, saying its index weighting had fallen steadily over the past few years and its “minimum investable market capitalization” had fallen below the level needed to maintain its status.
Pakistan has requested a long-term loan from the IMF, and Finance Minister Muhammad Aurangzeb said a loan agreement for more than $6 billion could be signed this month.
–With assistance from Divya Balji.
(Updates with index performance and analyst commentary.)
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