Are the govts efforsts paying off? Perhaps!
Merrill Lynch bullish on Pakistan
By Dilawar Hussain
KARACHI, Feb 17: “Sell Indonesia, buy Pakistan”, the international financial services firm, Merrill Lynch (ML) recommends Pakistan, Sri Lanka, Vietnam and Mongolia as ‘new frontiers’ in their latest regional investment strategy report released on Thursday (Feb 15).
Among the four countries, Spencer White, the strategist who prepared the report says: “Pakistan remains one of our highest conviction overweight recommendations”. He reasons that the on-going economic reforms remains a core priority and that it should sustain high economic growth and lead to further financial stability, something which ML “feels the market has under-appreciated”. Best exposure to Pakistan has been recommended on rural expansion focus companies, which ML identifies as Adamjee Insurance; MCB; United Bank and Fauji Fertiliser Bin Qasim.
Talking about the region, ML says preference is shifting from China to Korea and Taiwan and the cyclic rotation from Singapore and Indonesia to Thailand.
“India remains unloved”, declares White. Finding commonalities in the four countries of the new frontiers (Pakistan, Sri Lanka, Vietnam and Mongolia), ML lists the following: All have GDP growth close to plus 8 per cent this year; privatisation across various segments of these economies is the key; This privatisation is a reflection of these smaller countries’ strong desire to “keep up with the Joneses” and all four countries fits the bill where “markets are better than broking, not the broking better than the market”.
The ML report discusses in detail why even among the four ‘new frontier’ countries, it considers Pakistan to be the “winner”. The report narrows down the choice between Pakistan and Vietnam.
It states that while ML likes Vietnam and had been overweight on that market for over a year, but its move from 300 to over 1,000 in the past 12 months meant it no longer was cheap. Almost three times as expensive as Pakistan and in spite of its improved turnover, Vietnam traded a sixth of what Pakistan does.
Showing almost a ‘crush’ on Pakistan, ML report mentions that Pakistan has the best privatisation-liberalisation programme of all four markets. “Unlike in India and Vietnam, there are no foreign ownership restrictions in Pakistan and you can own 100 per cent of any company in any sector”. In the past 18 months, Standard Chartered has bought Union Bank; China Mobile has bought Paktel and Philip Morris has bought Lakson Tobacco.
This year Pakistan State Oil (PSO) is to be privatised. The banks have been pretty much taken over by foreign players and all five cellular operators are foreign-owned, the report says.
In particular, says Merrill Lynch, we like the sustained high level of economic growth (plus 7 per cent) and Pakistan’s strong demographic potential for consumption.
As regards demographics, Merrill Lynch mentions that Pakistan has one of the world’s biggest populations. Of the 160 million, over 100 million are under the age of 21. And the report concludes: “This group will not retire until 2060 and will help power domestic consumption, which is already strong (e.g. growth in consumer staples, autos and telephony)”.