JPMorgan to Resume Equity Broking in Pakistan (Update2)
By Khalid Qayum
(Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, will resume onshore equity broking services in Pakistan after a gap of five years, to gain a share of a stock market that has grown 10-fold since 2001.
Investors have been drawn to emerging markets, which have recovered since the Sept. 11, 2001 attacks in the U.S., said Senior Country Officer, Reza Rahim, in a Feb. 23 phone interview from Karachi. ``There is more liquidity and the market capitalization has gone up. The Pakistan market has cheaper multiples compared with other emerging markets.''
The market value of Pakistan's benchmark KSE 100 index has surged 10 times to $52 billion, from $5 billion in 2001, after the South Asian country got aid and loans from western countries for helping to fight terrorism.
The benchmark Karachi Stock Exchange 100 index trades at 14.9 times future earnings, compared with neighboring India's Sensitive Index, which is valued at 20 times earnings, according to Bloomberg data.
JPMorgan will widen services from investment banking operations in ``one of Asia's fastest-growing economies,'' according to a release issued by the company today. ``Together with the investment banking business, we will be able to provide one-stop solutions to our clients offshore and domestically,'' the company said, citing Rahim.
The company advised Pakistan's government in 2005 on the sale of a 26 percent stake in Pakistan Telecommunication Co., the nation's biggest phone service provider, for $1.59 billion. It also helped the government sell shares in the country's five oil and gas fields in 2002 and was one of the managers of the sale of $800 million of bonds in 2006 and the auction of $500 million bonds in 2004.
No Others
``Many people have been talking to us'' to start equity broking in Pakistan, Razi-ur-Rehman Khan, chairman of the Securities & Exchange Commission said in a phone interview. ``No other firm has applied so far.''
Khan did not name any firm. According to SEC rules, all equity broking firms have to get permission from the SEC to start equity broking in Pakistan. No overseas equity firm has a seat, according to the Karachi stock exchange.
KASB Securities Ltd. has acted as a local affiliate for Merrill Lynch & Co. since 1992, said Farrukh Sabzwari, chief executive of the Karachi-based company, in a phone interview today. New York-based Merrill does not hold a stake, he said.
JPMorgan, along with other companies, is bidding to advise the government on selling global depositary receipts in Habib Bank Ltd. and United Bank Ltd., planned for this fiscal year, the government's economic adviser, Ashfaque Khan, has said.
The expansion of business in Pakistan by the bank ``will attract foreign investment and increase activity of overseas fund managers,'' said Mohammed Sohail, director of research at JS Global Capital Ltd. in Karachi. Foreign investors ``see potential in the economy and the excellent returns the equity market has provided in the last few years.''
Pakistan's ``macroeconomic fundamentals have improved tremendously,'' Rahim said. ``Banking, oil and gas, telecom, fertilizer and cement stocks are doing relatively well.''
Economic Growth
South Asia's second-biggest economy after neighboring India is forecast to grow at 7 percent in the fiscal year ending June 30, from 6.6 percent a year earlier and 8.6 percent in the previous 12 months, according to the government. The $129 billion economy is targeted to grow at an annual rate of as much as 8 percent for the next five years, Prime Minister Shaukat Aziz says.
The benchmark index rose 0.6 percent to 11,607.84 at the close on Feb. 23. Overseas share investors bought a net $697 million of Pakistani stocks in the July-January period, compared with $400 million a year earlier.
JPMorgan, which started equity research in Pakistan earlier this year, closed its equity trading business in the country in 2001 because the company was ``consolidating,'' Rahim said.
Rahim counted the general elections planned in one year as among the political risks in the country.
``We have to monitor very closely what happens in the general elections and whether the economic reform process continues,'' he said.
Pakistan's parliament completes its five-year term in November this year and general elections are due in two months after that. Aziz, who was appointed the country's finance minister in 1999, will complete his term as prime minister in November.
``If Pakistan keeps economic reforms going and controls the current account deficit, this is going be a booming economy,'' Mohsin S. Khan, Director Middle East and Central Asia at the IMF, said at the Pakistan Investment and Finance Conference on Feb. 21. ``The IMF is bullish on Pakistan.''
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