Foreign investor interest in Pakistani stocks picks up

CLAUDIA ASSIS

April 19, 2007 3:05 PM

Dow Jones Newswires

NEW YORK (Dow Jones/AP) - Karachi, Pakistan's most populous city, is abuzz with hard hats and traffic jams, reflecting the South Asian nation's increased economic activity and its emergence as a hot spot for foreign stock investors.

''You can't go a couple of miles without seeing some construction,'' said DWS Scudder managing director of emerging markets Terrence Gray, fresh from a visit to Karachi and the capital city Islamabad last week. ''They are tearing up roads all over the cities and trying to really make a big drive in improving infrastructure.''

Gray, who helps manage $2 billion in emerging market stocks at DWS Scudder, the U.S.-based unit of Deutsche Bank's Asset Management division, was in the South Asian nation to see for himself what others are saying: Pakistan offers good returns and cheap valuations.

Better still, it is not entirely on investors' radar screens, potentially rewarding the trailblazers venturing into the so-called frontier market. Pakistan is also the only country in Asia where foreigners can own 100 percent of any asset in any sector, according to Merrill Lynch.

''The government is fairly hands-off,'' said New York -based Ryan Floyd, a South Asian and sub-Saharan African stock trader with brokerage Auerbach Grayson Co. ''It's very investor-friendly.''

From its delicate geo-political position and the threat of terrorism to its own internal political disputes and democratic shortcomings, political tensions frame any discussions about investing in Pakistan.



Politics are certainly a concern, but investors in Pakistani stocks say the domestic story is too compelling to ignore. Pakistani stocks have added 24 percent in dollar terms so far this year on the MSCI Barra index, second only to Malaysia among emerging Asian stocks. Last year, it lost 1.6 percent on the MSCI, which opened up for more value after a spectacular 57 percent return in 2005.

Pakistan is Merrill's favorite market in Asia.

''We like to tell people Pakistan is the same story as Vietnam, for a third the price and five times the liquidity,'' the investment bank said in a report published Thursday. ''The reason Pakistan is so cheap is because of its perceived risk. In our view, that risk is about to diminish a lot.''

The investment bank foresees a political alliance between rivals President Gen. Pervez Musharraf and opposition leader and former prime minister Benazir Bhutto, and even normalizing relations between Pakistan and neighboring rival India.

The bottom line for Pakistani politics is ''Musharraf will stay in power because the elite (military, business community) like him,'' Merrill said.

Valuations are cheap compared with other emerging markets, with major companies having forward price-to-earnings ratios of 9 or 10, compared with an average ratio elsewhere in developing markets of 12 to 13.

Its relatively liquid market should also appeal to those veering off the beaten track: daily trading volume on the Karachi stock exchange averages $400 million to $500 million. By comparison, the Vietnamese stock exchange trades about $300 million a day. Nigeria, another so-called frontier market, trades between $40 million to $50 million daily.

The Karachi bourse's market capitalization hovers around $55 billion, compared to about $17 billion four years ago.

Many investors look at Pakistan as a place for India-style growth at much cheaper valuations, said Auerbach Grayson's Floyd.

Floyd visited Pakistan in November and struck up conversation with shopkeepers in major Pakistani cities. He heard that Pakistanis are spending more and switching to more expensive brands, with rising incomes supported by robust economic growth.

According to the Asian Development Bank, Pakistan's gross domestic product growth slowed to 6.6 percent in 2006 from an average of 8 percent in the previous two years. The ADB forecasts growth of 6.5 percent to 7 percent in 2007 and 2008.

Demand in some sectors is stretching supply. Cars, particularly, can be hard to get. Many dealerships in major cities have waiting lists, and it can take one to three months to get a car, Floyd said.

Pakistan's young population is also hankering for housing and cell phones.

Alongside portfolio inflows, foreign direct investment is also picking up.

Giant multinationals such as Egypt's telecommunications company Orascom , global bank Standard Chartered and China's wireless provider China Mobile have made acquisitions or set up units in Pakistan recently.

In terms of sectors, financials - banking and insurance, mainly - are expected to shine. Demand for loans is growing at more than 20 percent per year and consumer loans-to-GDP ratio is just 4 percent, providing plenty of room to grow, the lowest in Asia, Merrill said.

Pakistan is also the most under-penetrated consumer credit market in Asia, Merrill said.

DWS Scudder's Gray holds shares of Muslim Commercial Bank, which is also Merrill's pick among Pakistani banks. MCB is expanding into consumer lending, and it has one of the most extensive branch networks in the country.

Auerbach Grayson's Floyd highlighted Bank of Punjab on liquidity and the bank's planned branch expansion towards the country's northern hinterlands.

Other firms on Merrill's list of noteworthy Pakistani companies include Pakistan Oilfields, cement companies such as D.G. Khan Cement, and fertilizer maker Fauji Fertilizer bin Qasim.

AP-WS-04-19-07 1757EDT
http://www.newspress.com/Top/Article/artic...001474883780635

A foundation for economic emergence is being built. Lets hope it is permanent.

smoke this all you shaukat aziz haters!

I agree with you bro, because you have to give credit where credit is due. However those NS/BB lovers will never ever admit that Mush and SA are the best thing to happen to Pakistan in 20 years. Pakistan needs solid 6-8% growth for at least another 10 years at least, in order to establish itself as a regional economic powerhouse.
I just pray that Mush has the skills to keep these leeches away from power for at least that long. He may have to do some dirty deals with these snakes in the process, which I personally will forgive him.

Regards

Syed

I agree with you bro, because you have to give credit where credit is due. However those NS/BB lovers will never ever admit that Mush and SA are the best thing to happen to Pakistan in 20 years

So where are those Short cut slogan talkers ! .. What happened Hindustan Times editorials are too easy to digest for you guys !

Exsqueese Me???
ERROR! ERROR! THAT DOES NOT COMPUTE!

- Excuse me, poor attempt at humour!

Excellent development; I have always argued with friends and family living abroad that Pakistan is an excellent market to invest in for the future! Not to mention what our nation needs now more then ever is foreign investment; both in the SME and energy sector. An excellent catalyst for growth, I believe this is great for our economy and another step in the right direction.

The general has made some very controversial decisions, however it cannot be denied that he has helped polish Pakistan's portfolio for prospective investors across the globe.