I am confident that the new govt will continue to build on the massive economic successes of the last 8 years, and that Pakistan will remain one of the best performing economies in the world.
Wall Street Journal calls Pakistan a cash magnet
The paper, in an article posted on Wednesday, says the Pakistani stock market continues to be a profitable index to invest in. Those missing the boat on profits do it at their own discretion. The Pakistani market has a strong record of growth for 33 per cent in the past decade. Foreign investors are eager to invest in Pakistan. The Wall Street Journal article is mainly discussing American investment. Arab and Asian investment in Pakistan is continuing at a rapid pace. Many in Pakistan want to peacefully end the aid relationship with the USA, so that investment worth $10 billion a year can come into a stable economy, saiid the paper. Emaar International is investing more than $28 billion in the housing sector and there have been huge investment in the telcom sector. “Pakistan Could Become Cash Magnet If New Government Passes Some Tests,” said the paper.
Pakistan’s largely peaceful elections and swearing-in of a new prime minister have brought it some stability. But foreign capital — which stopped coming in because of the nation’s political turmoil — is still sitting on the sidelines, it added. Investors say they are eager to start putting money back into the country, one of the few emerging markets performing well this year. (The Karachi 100 Stock Exchange 100 Index is up about 8 per cent in 2008.)
However, they are waiting to see whether the new government will restart privatization moves halted last year and take other measures to repair an economy plagued by a budget sh For years prior to 2007, foreign investment in Pakistan rose steadily.
For the fiscal year that ended in June, the country received $5.2 billion in foreign direct investment and $1.8 billion in portfolio investment. But that was a high-water mark, followed by a temporary state of emergency, riots and the killing of opposition leader Benazir Bhutto. Investors turned sour; in the eight months that ended in February, foreign investment was just two-thirds what it was in the same period one year earlier. At Pakistan’s stock market, the numbers look surprisingly good. Even with the turbulence of 2007’s last months, the Karachi 100 index was still up 40 per cent for the year. And its performance so far in 2008 compares favorably not just with Western markets, but with the Bombay Stock Exchange’s Sensex index, which has dropped 23 per cent. Still, the Pakistani market’s performance hasn’t been enough to tempt people to invest further. “We’re not ready yet to put in a lot more,” says Slim Feriani of Progressive Asset Management, a London-based emerging markets fund that has invested $3.2 million in Pakistan. “We just want to let the dust settle a bit.”
The new government’s first test is coming up. Last year, Pakistan announced plans to sell stakes in the National Bank of Pakistan and Habib Bank through global depositary receipts, or GDRs, on the London Stock Exchange. As political storm clouds gathered, the sales — expected to be for a 23 per cent stake in NBP and a 7.5 per cent stake in Habib Bank — didn’t materialise. Investors say they would also like to see more privatization in the oil sector, which also draws a large share of foreign capital. But unlike in banking, the Musharraf-led government made no promises to open up oil exploration to further private investment. A bigger, potentially thornier task for policy makers still lies ahead. Pakistan is facing a large budget shortfall and a current-account deficit equivalent to 5.3 per cent of its gross domestic product. Investors are asking if the new government, formed by parties that have promoted populist policies, can take the measures needed to avert an economic crisis. “Let’s not skirt around the issue that these guys have been in power in the past and they’ve had a pretty bad track record in governance and also dealing with foreign investors,” says Sakib Sherani, an economist with ABN Amro Bank in Pakistan. In spite of the economic woes, some observers expect the Karachi market to gain 20 per cent to 25 per cent in 2008, in line with growth in corporate earnings. The expectations are based on the idea that some sectors of the economy, such as real estate, are undervalued, and on the continuing attractive valuation of Pakistani stocks. By some estimates, stocks in Pakistan have a historic average price-earnings ratio of 11.
