Pakistan likely to be removed from MSCI if KSE floor intact

Pakistan is likely to be removed from the Morgan Stanley Capital International (MSCI) emerging markets index if the floor at the Karachi Stock Exchange (KSE) remains intact.Such a development could limit the ability of institutional investors to invest in Pakistan, government argued in a request placed with International Monetary Fund, which approved $7.6 billion standby arrangement, to remove the floor at the stock markets.

Country's stock market is currently under floor and now the authorities are mulling over various options to resume the normal trading following the IMF' opposition to give the support fund to the market from the taxpayers' money."Such a decision could lead to significant portfolio outflows, consequently putting the pressures on the reserves position," government contends.

The authorities also indicated that they were considering supporting the market through: a fund to be established by four state-owned financial institutions (with borrowing guaranteed by the government) to buy shares in seven large state-owned companies or through government guarantees of 12-month put options, which have been shelved now to insure investors against possible stock price declines.

The authorities, however agreed that the timing and terms under which the floor will be removed, including any use of public funds to support the market, would be decided after reaching understandings with the Fund staff. On the other hand, Securities & Exchange Commission of Pakistan (SECP) and KSE are engaged in intense talks on how to remove the floor with the fund. "We are discussing the various options to arrive at favourable conclusion, both in the interest of exchange and government," a director of KSE said. "The floor wont be removed before Eid," he added.

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