Pakistan to be dropped from MSCI emerging markets index this month

[Naveed Yaseen]

MONITORING DESK
KARACHI (December 12 2008): MSCI Barra (NYSE: MXB), a leading provider of investment decision support tools world-wide, including indices and portfolio risk and performance analytics, announced on Wednesday that it will remove the MSCI Pakistan Index from the MSCI Emerging Markets Index as of the close of December 31, 2008.

"FLOOR RULE" HAS RESULTED IN THE PRACTICAL SHUTDOWN OF THE PAKISTANI EQUITY MARKET: "MSCI Barra will maintain the MSCI Pakistan Index as a stand-alone index after its removal from the MSCI Emerging Markets Index. As a reminder, the MSCI international equity indices are constructed and managed with an objective of being fully investable from the perspective of international institutional investorsm" the noted provider said in its Geneva datelined press release.

According to MSCI Barra, the deterioration of investability conditions in the Pakistani equity market since the imposition of the "floor rule" at the end of August 2008, which has resulted in the practical shutdown of the Pakistani equity market, and the continued lack of visibility regarding a potential re-opening of the market and its impact on investability have made the continued inclusion of the MSCI Pakistan Index in the MSCI Emerging Markets Index untenable.

It may be mentioned here that the Karachi Stock Exchange (KSE) has prohibited investors from selling shares below their August 27 closing prices after stock prices tumbled more than 40 percent in four months.

During the last three months by preventing securities from trading on the exchange below the closing prices of August 27, 2008, the "floor rule" has led to the near total paralysis of market activity in Pakistani equities and caused significant distortions to investors' portfolio valuations by maintaining prices at artificial levels.

MSCI Barra observed that indications of action for a possible lifting of the "floor rule" continue to change course frequently. Even if the "floor rule" were to be lifted, it is likely to take some time for the market to begin operating normally and for investors and MSCI Barra to assess whether the return to investability is sustainable.

"Under these circumstances, MSCI Barra has concluded that the removal of the MSCI Pakistan Index from the MSCI Emerging Markets Index is warranted now. If and when the investability conditions return to more normal levels, MSCI Barra will, in due course, reassess the situation and consult with international institutional investors on the inclusion of the MSCI Pakistan Index in the appropriate MSCI international equity indices, including the MSCI Frontier Markets Index," it concluded.

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