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Pakistan ETF in Focus Ahead of Emerging Market Re-Entry
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Pakistan finally regained its emerging market status last week from the index provider MSCI in its May 2017 Semi-Annual Index Review. The re-entry into the emerging market block after nine years was made possible by the country’s improving liquidity and growth. Pakistan lost this position in late 2008, following a period of market turmoil that halted trading for months in the Karachi exchange.
Pakistan is the first country to get the frontier-to-emerging promotion after Qatar and the United Arab Emirates several years ago. MSCI will add Pakistan to the Emerging Market Index effective May 31, at the market close, with a weight of just 0.2% (read: Can Emerging Market ETFs Retain Their Mojo in 2017?).
The reclassification is making investors bullish about Global X MSCI Pakistan ETF – the ETF targeting Pakistani equity markets. The fund will likely lure a wider class of investors thereby injecting huge amounts of money into the country. In fact, the fund is on track for the biggest monthly inflow since its inception two years ago. The ETF has gathered $11.8 million in capital so far this month, propelling its asset base to $48.5 million. According to Bloomberg, the bearish bets have also fallen to the lowest level since December. Over $1 million short positions have been cut over the past six weeks.
PAK in Focus
The product offers exposure to 43 Pakistani equities by tracking the MSCI All Pakistan Select 25/50 Index. The top two firms – Habib Bank and Lucky Cement – dominate the fund returns with a double-digit exposure each. Other firms hold less than 7.2% of the assets. From a sector look, financials and materials occupy the top two positions at 33% and 28%, respectively, followed by energy (18%).
The ETF is expensive relative to many emerging market funds, charging 91 bps in fees and expenses. Additionally, it trades in small volumes of about 35,000 shares resulting in additional cost in the form of wide bid/ask spread.
PAK has been outperforming the broad emerging funds, returning investors 33.5% over the past one-year period compared with gains of 29% for (EEM - Free Report) . It has a Zacks ETF Rank of 3 or ‘Hold rating with a Medium risk outlook, suggesting more room for upside (read: Pakistan ETF Hits New 52-Week High).
The outperformance is likely to continue given the country’s GDP growth, falling poverty, and bourgeoning middle class. After falling to below 4% growth in 2008, Pakistan GDP growth hit a 10-year high of 5.28% for fiscal year 2016–17. However, terrorist attacks, bombings, other incidents of violence and brutal state retaliation continue to weigh on the country’s growth and the ETF performance.
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Pakistan ETF in Focus Ahead of Emerging Market Re-Entry
Pakistan finally regained its emerging market status last week from the index provider MSCI in its May 2017 Semi-Annual Index Review. The re-entry into the emerging market block after nine years was made possible by the country’s improving liquidity and growth. Pakistan lost this position in late 2008, following a period of market turmoil that halted trading for months in the Karachi exchange.
Pakistan is the first country to get the frontier-to-emerging promotion after Qatar and the United Arab Emirates several years ago. MSCI will add Pakistan to the Emerging Market Index effective May 31, at the market close, with a weight of just 0.2% (read: Can Emerging Market ETFs Retain Their Mojo in 2017?).
The reclassification is making investors bullish about Global X MSCI Pakistan ETF – the ETF targeting Pakistani equity markets. The fund will likely lure a wider class of investors thereby injecting huge amounts of money into the country. In fact, the fund is on track for the biggest monthly inflow since its inception two years ago. The ETF has gathered $11.8 million in capital so far this month, propelling its asset base to $48.5 million. According to Bloomberg, the bearish bets have also fallen to the lowest level since December. Over $1 million short positions have been cut over the past six weeks.
PAK in Focus
The product offers exposure to 43 Pakistani equities by tracking the MSCI All Pakistan Select 25/50 Index. The top two firms – Habib Bank and Lucky Cement – dominate the fund returns with a double-digit exposure each. Other firms hold less than 7.2% of the assets. From a sector look, financials and materials occupy the top two positions at 33% and 28%, respectively, followed by energy (18%).
The ETF is expensive relative to many emerging market funds, charging 91 bps in fees and expenses. Additionally, it trades in small volumes of about 35,000 shares resulting in additional cost in the form of wide bid/ask spread.
PAK has been outperforming the broad emerging funds, returning investors 33.5% over the past one-year period compared with gains of 29% for (EEM - Free Report) . It has a Zacks ETF Rank of 3 or ‘Hold rating with a Medium risk outlook, suggesting more room for upside (read: Pakistan ETF Hits New 52-Week High).
The outperformance is likely to continue given the country’s GDP growth, falling poverty, and bourgeoning middle class. After falling to below 4% growth in 2008, Pakistan GDP growth hit a 10-year high of 5.28% for fiscal year 2016–17. However, terrorist attacks, bombings, other incidents of violence and brutal state retaliation continue to weigh on the country’s growth and the ETF performance.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>