Pakistan was lowered to frontier market status, from secondary emerging market by FTSE Russell, dealing a blow to the nation’s equities and potentially driving millions of dollars in outflows.

The South Asian country’s market failed to meet the minimum securities count requirement for retaining its current status, the index compiler said in a statement on Wednesday (July 3). The decision comes into effect on Sept 23, it added. 

Debt concerns and political turmoil have caused volatility in the nation’s stocks over the years, eroding market capitalisation. Pakistan lost its emerging-market status at MSCI Inc in 2021, just four years after it was upgraded, due to its shrinking market size and liquidity.

The benchmark KSE-100 Index has surged from a low last year, outperforming most global peers in the past 12 months, with help from a loan deal with the International Monetary Fund (IMF). Still, FTSE Russell placed the nation on its watchlist for a possible demotion to frontier market in its September review, saying its index weight had decreased steadily over the past few years, and its “minimum investable market capitalisation” fell below the level required to retain its status.

  - Bloomberg