MSCI disappoints Pakistan traders hoping for a downgrade

EQUITY traders are usually disappointed when MSCI Inc downgrades a country’s index status. With Pakistan, they are upset it didn’t.

Investors had expected the index provider to start talks on downgrading the country after it failed to meet the minimum market-size threshold to maintain the emerging-market status. But the New York-based company left out any mention of Pakistan in its annual-review statement earlier this week. The nation’s equity benchmark has declined for four straight days, on course for the biggest monthly loss this year.While the omission is consistent with MSCI’s policy to give under-performing markets time to rebound above technical thresholds, traders worry that Pakistan’s presence in the emerging-market group is starving it of foreign-fund flows given its tiny weight. A shift to the frontier gauge may give it a sizable presence in that segment and help it lure fund allocations.“One ray of immediate hope was Pakistan gets a downgrade leading to a higher weight in FM,” said Gohar Rasool, the head of international sales at Intermarket Securities Ltd. in Karachi. “Local investors see a downgrade as a possible trigger for foreign inflows and would play along and join the bandwagon.”