Economy

Apr 23, 2021

MSCI May-21 SAIR Preview

LUCK, MEBL, and TRG in the race

Best Equity research report (Runner up) – 2020

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Fahad Rauf Fahad.rauf@ismailiqbal.com Phone: (+92-21) 34320375 1

Economy
LUCK, MEBL, and TRG in the race Apr 23, 2021

The MSCI is scheduled to announce Semi-Annual Index Review (SAIR) on May 11, 2021, which will Pakistan has underperformed MSCI EM since last
be effective from May 28, 2021. Contrary to the previous SAIR, which remained a non-event for review
140
Pakistan, we may witness a couple of changes in the upcoming SAIR. LUCK is likely to replace
OGDC in the standard index, while in the small cap index, PKGS could be replaced by TRG or 130

MEBL. 120

110
Pakistan’s MSCI Standard Index market cap has remained flat as compared to Nov-20 SAIR,
underperforming the MSCI EM index by 20%. This would further reduce Pakistan’s weight to 100
1.6bps (1.7bps if LUCK is added) from 2.0bps at the previous SAIR and 14.0bps at the time of
90
inclusion in 2017.
80

Dec-20

Dec-20
Oct-20

Mar-21

Mar-21

Apr-21

Apr-21
Nov-20

Nov-20

Nov-20

Jan-21

Jan-21

Feb-21

Feb-21
Pakistan has been surviving on the index continuity rule since May-19, and none of the three
stocks in the MSCI Standard Index (OGDC, MCB and HBL) meet free float or total market cap
criteria (refer to the table on page 3). Even after applying the 2/3rd buffer rule, none of the MSCI EM KSE 100 Pak Standard Index
source: Bloomberg, IIS Research
stocks meet the free float criteria, while only OGDC meets full market cap criteria. Looking at the
scenario, there are increased chances of Pakistan being put on the monitoring list for a potential Pakistan's weight in MSCI EM Index - Estimated
downgrade in the near future (potentially in the annual market reclassification review in Jun-21). Free Float Market Cap USD 'bn
To note, index continuity has also been applied to Argentina, Czech Republic, and Egypt. MSCI EM Index Free Float M.cap - as at 19-04-2021 8,252
Pakistan Standard Index Free Float M.cap 1.3
Based on index continuity rules, LUCK is likely to beat OGDC on a free float market cap basis (even Weight 0.016%
after applying a 1.5x factor to OGDC’s market cap), thus landing a place in the standard index. In
Changes in market caps - Standard Index
small cap index, PKGS is likely to be deleted. In replacement, TRG looks to have a more stronger Free Float Market Cap - USDmn Apr/21 Oct/20 ▲
case than MEBL based on most of the criteria; however, TRG price run-up has been rather HBL 461 498 -8%
extreme, which might restrict it from getting added in the current review. To note, we had MCB 469 435 8%
expected PKGS to be deleted in Nov-20 SAIR as well. However, it somehow managed to maintain OGDC 411 405 1%
its place. Total 1,341 1,338 0%
Source: MSCI, IIS Research

Fahad Rauf Fahad.rauf@ismailiqbal.com Phone: (+92-21) 34320375

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Economy
LUCK, MEBL, and TRG in the race Apr 23, 2021
Existing Stocks in MSCI EM Standard and Small Cap Index
Stock M.Cap Free Float FIF ATVR ATVR Minimum Criteria for MSCI EM Standard Index
USD mn USD mn x 3M 12M EM Standard Index USD 'mn
Standard Index - criteria before buffer 2,190 1,095 0.15 15% 15% Market Cap
Standard Index - criteria after buffer 1,467 734 0.15 5% 10% Criteria Free Float Market Cap - as at last review 915
OGDC 2,738 411 0.15 7% 8% Criteria Total Market Cap - as at last review 1,831
MCB 1,340 469 0.35 2% 2% EM Return since last review 20%
HBL 1,152 461 0.40 7% 6% Adjusted Free Float Criteria - estimated 1,095
Adjusted Total Market Cap. Criteria - estimated 2,190
Small Cap Index - criteria before buffer 382 191 0.15 15% 15%
Small Cap Index - criteria after buffer 256 128 0.15 5% 10% Market Cap Criteria - Post 2/3rd Buffer Rule
PPL 1,507 369 0.24 6% 9% Free Float Criteria - estimated 734
LUCK 1,803 721 0.40 10% 13% Total Market Cap. Criteria - estimated 1,467
MARI 1,386 277 0.20 2% 2% Source: MSCI, IIS Research
ENGRO 1,123 618 0.55 3% 3%
UBL 954 381 0.40 10% 6%
Minimum Criteria for MSCI EM Small Cap Index
FFC 865 476 0.55 2% 2%
EM Small Cap Index USD 'mn
POL 681 311 0.46 3% 5%
Market Cap
HUBC 659 494 0.75 7% 6%
Criteria Free Float Market Cap - as at last review 160
INDU 570 97 0.17 5% 3%
PSO 663 298 0.45 14% 13% Criteria Total Market Cap - as at last review 319
EFERT 583 262 0.45 6% 7% EM Return since last review 20%
NBP 493 117 0.24 5% 6% Adjusted Free Float Criteria - estimated 191
BAFL 349 139 0.40 4% 4% Adjusted Total Market Cap. Criteria - estimated 382
SEARL 388 175 0.45 13% 21%
MTL 397 179 0.45 3% 2% Market Cap Criteria - Post 2/3rd Buffer Rule
PKGS 275 69 0.25 2% 4% Free Float Criteria - estimated 128
Total Market Cap. Criteria - estimated 256
Potential candidates in race to replace PKGS in small cap Source: MSCI, IIS Research
TRG 618 525 0.85 114% 87%
MEBL 1,010 252 0.25 5% 6%
Source: MSCI, Bloomberg, IIS Research
ATVR cut-off date: 31-Mar-21, Price cut-off date: 19-Apr-21

Fahad Rauf Fahad.rauf@ismailiqbal.com Phone: (+92-21) 34320375

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Economy REP-092

Apr 23, 2021

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Fahad Rauf Fahad.rauf@ismailiqbal.com Phone: (+92-21) 34320375

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