MSCI SAIR Preview May’21

msci china a shares

Dear Clients,

What is expected to happen? Lucky Cement (LUCK) is likely to get promoted to the MSCI Standard Index after gaining 30% higher Free-Float market capitalization since Oct 30’20 and improving investability conditions at the local bourse. TRG Pakistan (TRG) stands ready to be included in the MSCI Emerging Market Small Cap Index as investability factors for the scrip have become largely admissible. Both LUCK and TRG are now among the top 5 heavy weight KSE100 index movers with 4.98% and 3.84% weight, respectively. Occurrence of this eventuality over the long holiday season is likely to bring a post-festivity rally on the local bourse.

Do we expect any exclusions? The latest MSCI updates for Mar31’21 highlighted that the smallest constituent in EM Index and Small Cap index had a free-float of USD 108.9mn and USD 37.5mn, respectively. This takes away a possible exclusion of the stocks that seem to drop out from investability concerns. We highlight Packages Limited (PKGS) as a possibly drag on Small Cap Index from Pakistan; however, it covers basic investability grounds in major aspects.

Why is it different from Oct’20? During the last Equity Universe update in Oct’20, the markets were still recovering from the pandemic, and would have been an unlikely proxy for the review to make concrete changes. The market has now consolidated largely from V-shaped economic recovery and there is enough warranties over assessment through the investability criteria.

The new methodology is in place: As per the Apr’21 methodology update, the MSCI Standard, MSCI Small Cap and MSCI Equity Indexes have transitioned into Global Investable Market Indexes (GIMI) Methodology. This uniform criteria accounts for a broad-based classification mechanism.

KASB Research

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