FTSE Russell Downgrades Pakistan to Frontier Market Status with Minimal Impact Expected

Islamabad: FTSE Russell has reclassified Pakistan from a Secondary Emerging Market to a Frontier Market, effective September 2024, due to its failure to meet the minimum securities count requirement. This adjustment follows the country's placement on the watchlist in March 2023 and reflects a shortfall in eligible constituents within the FTSE Emerging Market Index.

According to AKD Securities Limited, the criteria for maintaining Secondary Market status includes a minimum number of securities and a specific market capitalization threshold, both of which Pakistan currently does not meet. The Frontier Market classification, however, does not require adherence to these minimum criteria, which provides some leeway for Pakistan in its new category. Despite this downgrade, the overall impact on global indices and investor sentiment is expected to be minimal due to Pakistan's already negligible weight in the Emerging Market Index.

From an investment perspective, the downgrade is seen as largely inconsequential to Pakistan’s market dynamics, with foreign inflows remaining robust since the country's initial watchlist placement. Analysts suggest that the upcoming inclusion in the IMF program might boost investor confidence, potentially counteracting any negative effects from the reclassification. The KSE-100 index continues to trade at an attractive forward price-to-earnings ratio, with sectors poised for growth amid tight fiscal and monetary policies.