The FTSE benchmarked fund Vanguard has significantly reduced its position in Pakistani stocks, selling approximately 50% of its holdings by September 2024. According to Topline Securities’ analysis, Vanguard sold around $82.5 million worth of stocks from an initial position valued at $165 million as of April/May 2024. The accelerated sell-off has continued into October, with an additional $60 million worth of stocks sold in the first two weeks of the month, bringing the total sales to an estimated $135-145 million.
Background on FTSE Reclassification
This sell-off follows a notable reclassification of Pakistan’s stock market by FTSE Russell. On July 3, 2024, FTSE Russell announced that Pakistan would be reclassified from a Secondary Emerging Market to a Frontier Market, effective from September 23, 2024. This reclassification was attributed to Pakistan’s inability to meet the stock count criteria necessary to maintain its status as a Secondary Emerging Market. Before this shift, the FTSE benchmarked fund held approximately $160-165 million in Pakistani stocks.
Major Stock Divestments
By September 2024, Vanguard had fully divested its holdings in Systems Limited, selling 1.8 million shares. The fund also significantly reduced its position in OGDC (Oil & Gas Development Company), selling off 96% of its 26.3 million shares, leaving just 1.3 million shares. Similarly, EFERT (Engro Fertilizers) saw a major sell-off, with 84% of the fund’s position being sold, amounting to 18.4 million shares out of a total holding of 21.8 million.
Remaining Positions in Pakistani Stocks
As of September 2024, Vanguard retained some of its holdings in a few Pakistani stocks. It reduced only 11% of its position in PSO (Pakistan State Oil), maintaining a significant 11.4 million shares out of 12.8 million. Additionally, the fund retained 72% of its holdings in PPL (Pakistan Petroleum Limited) and FFC (Fauji Fertilizer Company), with remaining shares of 17.8 million and 18.2 million respectively out of total initial holdings of 25.0 million and 25.3 million shares.
October 2024 Sales Analysis
In the first 14 days of October 2024 alone, Vanguard was responsible for selling an estimated $55-60 million worth of Pakistani stocks. The broader foreign selling activity during this period amounted to $88 million (gross), including significant sales in non-FTSE stocks like COLG (Colgate-Palmolive Pakistan), valued at approximately $18 million. Adjusting for the COLG sales, the majority of the remaining selling—about 85-90%, equivalent to $60 million—can be attributed to Vanguard. As of mid-October, the fund’s remaining exposure to Pakistani stocks is estimated at $20-30 million, with primary holdings likely concentrated in FFC, TRG Pakistan, ENGRO, MTL (Millat Tractors Limited), and PSO, based on NCCPL FIPI data analysis.
Market Absorption and Outlook
The sell-off by Vanguard has been largely absorbed by local mutual funds, which have emerged as key buyers, acquiring a net total of $86.2 million worth of stocks from September 2024 to date. Local companies have also contributed, with net inflows amounting to $25.3 million during the same period.
Despite the selling pressure from foreign investors, Topline Securities remains optimistic about the future trajectory of the Pakistan Stock Exchange (PSX). The firm’s analysis projects the PSX to reach the 106,000-point mark by June 2025, which would translate to a 24% return from current levels. This outlook suggests that while the FTSE reclassification has impacted short-term sentiment, local investors’ buying activity could provide a cushion, stabilizing the market and offering opportunities for potential growth in the months ahead.
The situation highlights the dynamic nature of Pakistan’s equity market, where foreign divestments and local investments play pivotal roles in shaping market trends. As Vanguard continues to adjust its position, the focus remains on how the PSX and other stakeholders will respond to this evolving landscape.