After reforms, KSE seeks upgrade of market status

By Kazim Alam, The Express Tribune

Following a giant leap forward in the process of reforms with the demutualisation of stock exchanges, Pakistan has knocked on the doors of Morgan Stanley Capital International (MSCI) – a major provider of market indices across the world – for an upgrade of its status that will attract more international investors.

A delegation of the Karachi Stock Exchange (KSE), led by its Chairman Munir Kamal, called on MSCI officials at the MSCI office in London recently, where it requested for the upgrade of Pakistan’s capital market status from ‘frontier’ to ‘emerging’ to attract more portfolio investment into the country, says a press release.

MSCI Global Equity Indices for developed, emerging and frontier markets are global equity benchmarks.

MSCI provides about 6,200 clients with investment decision support tools worldwide and its clientele ranges from large pension plans to boutique hedge funds, according to the MSCI website.

The delegation, which also included KSE CEO Nadeem Naqvi, apprised the MSCI officials of the demutualisation of stock exchanges, structural changes and comprehensive reforms in the regulatory framework, risk management and operations of the exchange.

It highlighted underlying signs of economic stabilisation in Pakistan, change in monetary policy stance, centralisation of capital gains tax at the National Clearing Company of Pakistan and implementation of know-your-client (KYC) and anti-money-laundering regulations in the stock brokerage industry.

Talking to The Express Tribune, Emerging Economics Research Managing Director Muzzammil Aslam said an upgrade in Pakistan’s status would result in the country joining the league of big economies like China, India, Brazil and South Korea.

Explaining the significance of a possible upgrade, Aslam said those equity markets that formed the MSCI’s emerging market category attracted heavy investment from around the world because fund managers depended on the MSCI Emerging Markets Index while making investment decisions.

“Our transition into the emerging markets category will put us on the radar of massive fund managers,” he said.

The KSE delegation told the MSCI officials about the 18th Amendment to the Constitution and improvement in trade relations between Pakistan and India, the statement said.

The statement quoted the MSCI officials as saying that they appreciated the comprehensive market and institutional capacity update presented to them, adding that these factors would be kept in mind when the next review was done.

MSCI frontier markets include 25 countries. Pakistan’s weight in the MSCI Frontier Markets 100 Index is 4.8%, fifth largest.

“While we were part of the MSCI Emerging Markets Index until 2008, our share used to be just 0.2%, which is negligible. Many large funds would simply ignore us because of our low weight,” Aslam said.

Neither the KSE chairman nor its CEO was available for comment when contacted by The Express Tribune.

Published in The Express Tribune, September 11, 2012.

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