LAHORE - Pakistani stocks hit a record high Wednesday after US index firm MSCI upgraded the country to "emerging market" status, improving its market visibility which would attract investors.

The benchmark Pakistan Stock Exchange gained 1,003 points, or 2.7 percent, to touch a high of 38,520 points by the close of trade, after the Morgan Stanley Composite Index (MSCI) of the US announced its annual market classification review.

The US firm upgraded Pakistan Market from MSCI Frontier Markets (FM) Index to MSCI Emerging Markets (EM) Index, effective from May 2017, listing the country on its influential global equities index for the first time since 2008.

The index company excluded China's A shares from the Emerging Markets Index for the third year running, saying that China still had to do more to make its markets accessible to foreign investors.

The MSCI also did not review Saudi Arabia's stock market for giving it emerging market status, which led to a general fall in the Gulf markets.

The US company has improved Pakistan’s status admitting country’s growing capital markets, improving liquidity and potential macroeconomic growth ahead, experts said.

"The inclusion of Pakistan in the category of 'Emerging Market' is an indication of the confidence of the international institutions in Pakistan's economy," Finance Minister Ishaq Dar said in a statement.

This up-gradation to the Emerging Markets Index, which guides the allocation of billions of dollars of investments, would trigger foreign inflows which would be concentrated in large and liquid blue-chip stocks, experts said.

In US Dollar terms, experts see $300-500 million foreign inflows from EM index tracking funds while improved market visibility would also attract other investors.

The following nine companies are to be included in MSCI EM as per the Webinar: Oil & Gas Development (OGDC), Habib Bank (HBL), MCB Bank (MCB), United Bank (UBL), Lucky Cement (LUCK), Fauji Fertilizer (FFC), Engro Corporation (ENGRO), Hub-Power Co (HUBC) and Pakistan State Oil Co (PSO).

The simulated MSCI Pakistan Investible Market Index (IMI) has 27 companies. Pakistan has to sustain the overall economic recovery along with quality listings of large float companies, experts said.

The country has 9.0% weight in MSCI FM Index and 9.7% in MSCI FM Small Cap Index. As per MSCI Webinar, country’s weight in MSCI EM will be 0.2% and it will be amongst one of the smallest country in MSCI EM along with Egypt and Czech Republic, which are also 0.2%.

Saad Hashmi, an expert from Topline Securities, observed that in Asian FM, Pakistan was previously part of Sri Lanka, Bangladesh and Vietnam, but now it will be part of 8 other countries including China, Korea, Taiwan, India and Malaysia etc.

He foresaw gross inflow of $600m by EM passive funds, as MSCI was of the view that flows in Pakistan market will most likely increase due to EM upgrade.

Zeeshan Afzal, CFA from Insight Securities Private Limited observed that MSCI decision to delay the inclusion of China A shares in the EM club would also bode well for us as the inclusion would have reduced Pakistan’s weight.