KARACHI: The FTSE, an international company specialising in index calculation, is set to include five additional stocks from Pakistan in its Asia Pacific ex-Japan Index with effect from Sept 18 — a move that can possibly result in heavy foreign inflows.

The FTSE Global Equity Index Series Asia Pacific ex-Japan Regional Index announced the results of its semi-annual review on Aug 31. The changes will be effective from the close of business on Sept 15.

The five companies to be added to the index are MCB Bank, Sui Northern Gas Pipelines, Bank Alfalah, Millat Tractors and Thal Ltd.

This should not be confused with the upgrade of six companies, namely Oil and Gas Development Company, Habib Bank, United Bank, Lucky Cement, MCB Bank and Engro Corporation, by global index provider MSCI to the emerging market status on June 1.

Analysts had expected heavy inflows in the wake of the MSCI upgrade, but foreign investment dropped after June 1.

Taking their cue from that debacle, most investors are taking the latest development with a pinch of salt.

Yet some analysts are espousing the idea of a salutary effect on the Pakistan Stock Exchange (PSX) as FTSE includes five additional stocks from Pakistan in one of its indexes. They relate it to the upsurge of 1,555 points (3.75 per cent) in the KSE-100 index in the last three trading sessions.

“The market is already abuzz with a wide range of expectations for Friday,” stated Hamad Aslam, head of research at Elixir Securities. He added that some people eye gross foreign inflows of up to $70 million in line with what happened in the last semi-annual inclusion.

“We, on the other hand, believe that Pakistan equities may witness much lower addition of $28m on Friday while overall gross inflows may be up to $40m,” Mr Aslam said. He also cautioned that equities may even record net outflows as some foreign funds book profits in the five stocks.

The lack of investors’ exuberance is understandable. “Once bitten, twice shy,” a small-time broker said while referring to the euphoria leading up to the PSX upgrade to the MSCI Emerging Market in June. Hundreds of investors suffered enormous losses as the bear run, which started around the time of Pakistan’s upgrade by MSCI, has wiped off 22pc value from the KSE-100 index since May 25.

To recall, the six stocks that were selected for the upgrade by MSCI started selling like hotcakes weeks before the date of inclusion. Buyers expected to offload these stocks at a premium to emerging-market passive funds after June 1.

Analysts expected inflows of around $500m on May 31 for which regulators and brokerages made elaborate arrangements. At the end of the day, however, there was a net outflow of $82m. The benchmark KSE-100 index also succumbed to a record single-day decline of 1,811 points.

Published in Dawn, September 15th, 2017