Some good news…
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Pakistan share market makes giant strides
by: Robin Pagnamenta
From: The Australian
June 01, 2013 12:00AM
IT IS plagued by a terrorist insurgency, paralysed by blackouts and its financial and business hub, Karachi, is one of the most violent cities on earth. So why, over the past 18 months, has Pakistan’s stockmarket been among the best performers in the world?
Last year the Karachi Stock Exchange’s 100-share index surged by 49 per cent, placing it among the top five globally. This year the index has roared another 21 per cent higher, propelled in part by investments from the likes of Mark Mobius and Goldman Sachs. At the end of March, 4.6 per cent of Mr Mobius’s $US18.5 billion ($19.1bn) Templeton Asian Growth Fund was invested in Pakistani shares, more than its exposure to Hong Kong, Singapore or Taiwan.
On one level, this buzz of excitement around Pakistani equities seems bizarre. Over the past five years, under President Asif Ali Zardari, Pakistan has been beset by violence, corruption and power cuts lasting up to 18 hours a day. These have forced factories to close and led to an exodus of migrants seeking better opportunities overseas.
It is a pernicious mixture that has hardly encouraged foreign investors. Growth in Pakistan’s $US210bn economy has averaged 3 per cent per year - less than half the rate of the previous five years.
But the world’s sixth most populous country, with nearly 200 million people, is nothing if not resilient and for all its troubles, things may not be quite as bleak as they seem.
The election of Nawaz Sharif as prime minister last month was the first time in Pakistan that one democratically elected government had handed over power to another, generating optimism that it may be on a path to greater stability.
Mr Sharif, a pro-business tycoon who spent several years in Saudi Arabia, is in talks with the Saudis about a $US15bn bailout to end the country’s power crisis.
If he can accomplish it, that alone would be a huge step forward for Pakistan, one that might offer enough of a breathing space to create a virtuous cycle of new business investment and jobs.
Indeed, with reliable power, some experts believe that Pakistan’s gross domestic product growth rate could double to 6 per cent or more, a figure that could be given a further boost if Mr Sharif succeeds in another stated goal - boosting trade with Pakistan’s traditional rival, India.
There are other grounds for cautious optimism. Pakistan has huge mineral resources, a youthful population expanding at 1.8 per cent a year and a middle class that is hungry for consumer goods. A diaspora overseas continues to support the economy through remittances.
Though the level of violence is still appalling, it is worth noting that it has also fallen sharply. From a peak in 2009 when 11,704 people were killed, deaths due to terrorism nearly halved to 6211 last year - still a grim statistic but a marked improvement.
If the trend continues and foreign investors can be lured back, the nation’s weak currency and low wages make Pakistan highly competitive.
Of course, it takes a brave investor to place a bet on a country with problems as big as Pakistan’s, but it’s not just speculators such as Mobius and Goldman that are taking a second look.
Unilever, the British consumer goods giant, recently launched a $US47bn share buyback to boost its exposure to its Pakistani-listed arm, a step it has also taken in other key emerging markets such as India and Nigeria.
The fact that such blue-chip names are putting their money where their mouth is says a lot about the potential they see in a country that is often dismissed as a basket case.
