Monday, December 21, 2009

Emerging Markets Expert Investing in Pakistan

Mark Mobius, a legend among emerging-market investors, is "overweight compared with everyone else" in Pakistani stocks, according to an interview published in the "2010 investment guide" issue of Businessweek magazine.

The 73-year-old fund manager, who oversees $33 billion spread across 35 Franklin Templeton funds, has been scouting for investment opportunities in unlikely places, including Pakistan, for over 30 years.

Mobius explains that for "our (Franklin Templeton's) Asia growth funds, we have been buying Pakistan Telecom, MCB Bank, and Indus Motor, which is a Toyota (TM) assembler and distributor". All three of these companies are listed on Karachi Stock Exchange.

There is considerable interest by individual US investors looking for opportunities to invest in Pakistan stocks. Unfortunately, there are no pure-play mutual funds investing exclusively in Pakistan. However, in addition to Franklin Templeton Funds, there are at least two other companies specializing in Asian economies that invest part of the portfolio in Pakistan along with India, Sri Lanka and other countries in Asia. These companies are Matthews Funds and Eaton Vance Funds.

Eaton Vance has Eaton Vance Greater India A Fund(ETGIX) that describes itself as follows: The investment seeks long-term capital appreciation. The fund normally invests at least 80% of net assets in equity securities of companies in India and surrounding countries of the Indian subcontinent. At least 50% of total assets will be invested in equity securities of Indian companies, and no more than 5% of total assets will be invested in companies located in countries other than India, Pakistan or Sri Lanka. The fund invests in companies with a broad range of market capitalizations, including smaller companies.

Matthews Asia Funds has Matthews Asia Pacific Equity Income Fund (MAPIX) which describes its geographic focus as follows: The Asia Pacific Region, which includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

In spite of the daily mayhem, continuing political instability, and ongoing counterinsurgency operations in the country, foreign portfolio investors have pushed Karachi's KSE-100 up by 57.8% in rupee terms and 48% in US dollar terms in 2009. Pakistan's Karachi stock market is among the best Asian performers in 2009, along with Shanghai and Mumbai.

Currently, Pakistan has a serious housing crisis and needs about 7 million additional housing units now, according to the data presented at the World Bank Regional Conference on Housing last year.

According to BMI research, the country’s real estate sector continues to be dominated by the two major issues of a chronic shortage of housing against a backdrop of rapid urbanization and rising population and the impact of security factors on the risk appetite of investors and developers.

The first of these factors remains as intractable as ever, with the most recent estimates identifying shortfall of 7.9mn houses. By contrast, the current government is committed to building just 1 million houses. Other estimates paint a similar picture with the Punjab province, with a population of 82 million, said to be facing a shortage of 5 million houses. By some accounts, nationally there is an incremental demand for 700,000 units a year against the annual construction of just 150,000 units.

As to the second factor, the major projects currently moving forward are being executed by risk-tolerant developers from regions such as the Gulf Cooperation Council(GCC) and government or government-linked landowners in Pakistan. This has significantly reduced the scope to provide housing at the level required to supply the backlog. Recently, however, there are reports that Malaysian developers are coming to Pakistan, according to Malaysian news agency Bernama in August 2009. The Malaysian developers are negotiating to build some 500,000 low-cost houses annually in various parts of Pakistan.

The recent Dubai debt crisis will likely hurt some Pakistani workers in the Gulf region. However, the flip side of Dubai troubles is that many of these Gulf developers will look at Pakistan where real estate investments have always been winners, regardless of the political or economic environment. The supply has continued to lag demand for housing, retail and office properties.

The Gulf and Malaysian investments in housing can potentially help resuscitate Pakistan's currently moribund economy by creating millions of new jobs directly and indirectly. Construction is one of the most labor intensive economic activity requiring large numbers of workers, creating hundreds of thousands of jobs. And when the buyers move in, they will demand all kinds of products and services to furnish their homes, thereby creating further employment opportunities. All of this is offers a great recipe for reigniting economic growth and renewed prosperity in Pakistan.

A new wave of housing construction offers an opportunity to the PPP leadership to live up to at least one of their election promises included in their "roti, kapda and makaan" platform. Looking back at the history of the political platforms that have succeeded, what comes to mind is the name of President Franklin Roosevelt and his "New Deal" , as well as the successive US Presidents' policies on "The American Dream" of home ownership for all. These policies helped reduce poverty and enhanced education and housing for a large number of people in the US. New housing construction can also help reduce poverty in Pakistan.

According to BMI research, Pakistan has experienced a high level of activity in its infrastructure sector in 2008. This has mostly been focused on the power sector and the road network. In addition, construction of housing has been a top priority. However, the global downturn is hitting Pakistan hard, and the BMI's 2009 Annual Infrastructure Report for Pakistan is forecasting the construction industry to contract by 6.31% y-o-y in 2009. The power sector has been the major focus in Pakistan's infrastructure sector in 2008. Years of underinvestment in electricity generating and distributing infrastructure came to a head in 2008, when there was not enough supply to meet demand, further exacerbated by lack of rainfall almost knocking out Pakistan's large hydropower sector. It is currently estimated that there is a 3,300MW shortfall in capacity at peak hours; as a result, load shedding has been a common practice. In an attempt to combat the shortages, a US$30bn investment plan has been announced, which has seen the development of a number of projects. Construction started in 2008 on the 969MW Neelum-Jhelum power plant, which is being built by a consortium comprising Chinese Gezhouba Group Company and China Machinery Export Corporation. Construction of the Diamer Basha Dam, which will have a capacity of 4,500MW once completed, is expected to start in 2009. Within the transport sector, the roads have benefited from the majority of attention in 2008. This has been the result of the National Highways Authority's plans to invest US$5.36bn into the sector. The plans benefited from a US$900mn multi-tranche loan from the Asian Development Bank. The main project being pursued is the National Trade Corridor, envisaged as a main thoroughfare connecting the north of the country to the ports in the south; it is estimated to cost US$6.58bn. Construction of housing has been a major feature in 2008. Residential construction is being carried out under the prime minister's 'mega housing scheme' which involves the construction of one million low cost houses per year. Pakistan's economy has been hit hard by the global economic downturn and BMI's is forecasting real GDP growth of 2.5% y-o-y in 2009, down from 6.8% in 2007. In November 2008, the country received a US$7.6bn 23-month standby loan from the International Monetary Fund to "support the country's economic stabilization program". The move might help boost investor confidence in the short term; however, it may put off investors looking at long-term infrastructure investments.

The 2008 World Bank assessment says that Pakistan is one of the most water stressed countries in the world, and water resources are depleting rapidly. With its water infrastructure in poor condition, the report argues that Pakistan has to invest around Rs60 billion (US$1 billion) per year in reservoirs and related infrastructure over the next five years. In the energy sector, the country will face severe power shortages of around 6,000 megawatts by 2010. Similarly, inefficiencies in the transport sector cost the economy between 4-5 percent of GDP each year.

To overcome these constraints, the Government of Pakistan is tripling its annual infrastructure investment from an average of Rs150 billion (US$2.5 billion) to Rs440 billion (US$7.3 billion). However, the bank report points out that mega projects in the past have experienced frequent delays and cost overruns, illustrating a lack of capacity in the industry to plan, program, and execute large projects.

Many infrastructure projects in Pakistan, including power plants and motorways, are being built and financed on build-operate-transfer or BOT basis. Built on the BOT basis, some of the motorways have already paid for themselves and now generate revenue for Pakistan government and contribute to GDP.


Related Links:

Karachi Stock Exchange

Pakistan FDI Survey Report 2009

Emerging Markets: Brazil, China---and Pakistan?

Templeton's Asian Growth Fund

Pakistan Economic Survey 2008-2009

Pakistan's Infrastructure

Karachi Fashion Week

Is Pakistan Too Big to Fail?

How To Invest in Pakistan?

Karachi Fashion Week Goes Bolder

More Pictures From Karachi Fashion Week 2009

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antarctica

Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom

Pakistan Telecom Sector Investment Prospects

ITU Internet Data

Eleven Days in Karachi

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Infrastructure and Real Estate Development in Pakistan

Pakistan's International Rankings

Foreign Direct Investments in Pakistan 1999-2009

Pakistan's Financial Services Sector

Assessing Pakistan Army Capabilities

Pakistan's Auto Industry

Pakistan is not Falling

Jinnah's Pakistan Booms Amidst Doom and Gloom

25 comments:

Shams said...

Dear Riaz,

Mobius is a hedge fund guy. In 12/2007, he was reportedly investing $150M in Pakistan, i.e. when KSE100 was in the pits. I have heard that ShortCut Aziz had a role in that and with Mobius. Mobius is reported to have said "This is the kind of situation they love, provided there is enough of a downturn” . He has been there before in 2003 and 1998.

He invested, the market was south, and when it recovered, he cashed out.

If he is going back, I would worry more about Pakistan.

What do you think?

Riaz Haq said...

There is a Mobius hedge fund but it is not managed by Mark Mobius. Hedge funds are very different from mutual funds. Mark Mobius is successor to Mark Templeton who founded Franklin-Templeton funds, a collection of highly regarded international mutual funds that invest around the world in different stock markets including Brazil, Russia, India and China. Please follow the links embedded in my email to learn more about it.

Mayraj said...

If Pakistan used the PLGC for the right purpose (as in NC example), Mobius would have more vehicles to invest in. But, first they need to appreciate local government as a tool in Pakistan...

Riaz Haq said...

Power sector has been holding Pakistan back in recent years. Here's BMI assessment of energy sector prospects:

The new Pakistan Power Report forecasts Pakistan will account for 1.37% of Asia Pacific regional powergeneration by 2013, with a stable theoretical generation surplus before the country’s substantialtransmission losses are taken into account. BMI’s Asia Pacific power generation assumption for 2008 is7,093 terawatt hours (TWh), representing an increase of 3.2% over the previous year. We are forecastingan increase in regional generation to 9,099TWh by 2013, representing a rise of 28.3%.

Asia Pacific thermal power generation in 2008 totalled an estimated 5,570TWh, accounting for 78.5% ofthe total electricity supplied in the region. Our forecast for 2013 is 6,999TWh, implying 25.7% growththat reduces the market share of thermal generation to 76.9% - thanks largely to environmental concernspromoting renewables, hydro-electricity and nuclear generation. Pakistan’s thermal generation in 2008was an estimated 62.8TWh, or 1.13% of the regional total. By 2013, the country is expected to stillaccount for 1.13% of thermal generation.

For Pakistan, gas is the dominant fuel, accounting for 47.5% of primary energy demand (PED) in 2007,followed by oil at 30.7%, hydro-electric energy at 12.9% and coal with a 7.9% share. Regional energydemand is forecast to reach 4,859mn tonnes of oil equivalent (toe) by 2013, representing 24.9% growthfrom the estimated 2008 level. Pakistan’s estimated 2008 market share of 1.52% is set to ease to 1.45%by 2013. The country’s estimated 2.5TWh of nuclear demand in 2008 is forecast to reach 5.0TWh by2013, with its share of the Asia Pacific nuclear market rising from 0.49% to 0.75% over the period.

Pakistan is ranked third behind India in BMI’s Power Business Environment Rating, thanks to itsrelatively high level of renewables (mostly hydro) generation and healthy power consumption/energydemand growth prospects. Several country risk factors offset some of the industry strength, but thecountry is in a good position to keep clear of Malaysia below.

BMI forecasts Pakistan real GDP growth averaging 3.98% a year between 2009 and 2013, with the 2009estimate at 2.50%. The population is expected to expand from 161mn to 177mn, with per capita GDP andelectricity consumption increasing by 20% and 11% respectively. Power consumption is expected toincrease from an estimated 81TWh in 2008 to 99TWh by the end of the forecast period, which provides arelatively stable theoretical generation surplus (before transmission losses, etc.), assuming 4.3% annualgrowth in electricity generation.

Between 2008 and 2018, we are forecasting an increase in Pakistani electricity generation of 59.2%,which is mid-range for the Asia Pacific region. This equates to 27.2% in the 2013-2018 period, up from25.1% in 2008-2013. PED growth is set to increase from 19.1% in 2008-2013 to 25.8%, representing49.9% for the entire forecast period. An increase of 49% in hydro-power use during 2008-2018 is a keyelement of generation growth. Thermal power generation is forecast to rise by 52% between 2008 and2018, with nuclear usage up 380% from a low base. More details of the long-term BMI power forecastscan be found at the end of this report.

Riaz Haq said...

Here's a Daily Times report on FDI:

KARACHI: The Overseas Chamber of Commerce and Industry (OICCI) has launched Investment Survey Report (ISR) 2009 according to which the business margins have come under pressure, leading to declining profitability and hence declining investments in Pakistan.

The results of the OICCI ISR show a limited increase in FDI by 0.97 percent, Rs 148 billion in FY08 as compared to Rs 146 billion in FY07. Behind this nominal increase law and order, power deficit and implementation of policy remain significant concerns impacting both new FDI and re-investment by existing companies.

However, this cautious but continued increase in investments comes as a positive surprise, forecasts for the following year i.e. FY09 indicate that members plan to withhold investments by approximately Rs 55 billion – a substantial decline of approximately 37 percent.

“This clearly indicates that foreign investors who had over the years continued to show confidence in the country are now cautious of bringing additional capital for the time being – Rs 93 billion planned for FY09.”

It is worth mentioning that despite declining profitability, tax paid to the government has increased by 8.41 percent.

Basically, the ISR 2009 report is based on the responses of 124 member companies (71 percent of OICCI members) and gives a snapshot of foreign investors and companies present in Pakistan.

Farrukh H. Khan, President, OICCI, while launching of ISR 2009 said that the key conclusions to be drawn from the Survey are that although OICCI member companies have continued to grow in terms of revenue, margins have come under pressure, leading to declining profitability and hence declining investments in Pakistan.

Pointing out the main issues he said that important issue impacting profitability, highlighted by OICCI members repeatedly, is the high incidence of direct and indirect taxes in Pakistan – which remains the highest in the region. He further added that as important stakeholders and partners in Pakistan’s progress, OICCI would urge the government to implement its recommendations and continue to include OICCI in policy-making forums. However, “most of the OICCI budget proposals were also neglected in the previous budget,” he claimed.

The ISR 2009 highlights that new and concrete measures are needed to enhance tax revenue by expanding the tax base rather than imposing further taxes on existing taxpayers, which has started to yield negative results. Despite the challenging global climate, exports from OICCI member companies increased by 33 percent to RS 34.8 billion during FY07 and FY08.

While recorded figures in Corporate Social Expenditure indicate a decline, it must be noted that these are not completely reflective of the full degree of contributions. Whether it is contribution towards national tragedies like that of the recent Internally Displaced Persons (IDPs) in the aftermath of the military operations in the North or investing in society for overall development, member companies continue to make generous contributions in cash and kind as well as in the form of sharing of skilled personnel.

It should be noted that the 124 members (survey respondents) of OICCI have invested paid-up capital worth $9.6 billion in Pakistan with the majority of investment in sectors such as Financial Services (27 percent), Oil/Gas & Energy (21 percent) and Food & Consumer Products (18 percent). The total equity (capital plus reserves) would be significantly higher.

While Pakistan’s intrinsic comparative advantages have succeeded in attracting significant amounts of foreign investment into the country, it is important to realize that unless the potential for development and growth is carefully utilized in the near term, OICCI members or other potential investors may reconsider their priorities with regards to existing and planned investments in Pakistan.

Shams said...

Riaz,

Apparently you read newspapers that I don't.

http://business.timesonline.co.uk/tol/business/markets/article3114272.ece

Riaz Haq said...

Shams,

Please read it carefully. The story does not say that Mark Mobius runs a hedge fund. To the contrary, it explains that Mobius will remain invested in spite of the hedge funds speculators trying to sell Pakistani shates short to make a quick buck. Mark Mobius is a long-term investor, not a short-seller. Here's what it says:

"One of the world's most respected emerging market investors has pledged to keep his funds in Pakistan despite the turmoil unfolding in the country following last week's assassination of former prime minister Benazir Bhutto.

Mark Mobius, who runs the $1.5 billion Templeton Emerging Market Investment Trust, also predicted that hedge funds would now move in to try to take financial advantage of the situation.

Speaking from his Singapore offices as the Pakistan stock markets tumbled 5 per cent, Mr Mobius said he was feeling "pretty sanguine" about events and said it was likely that stability would return."

Shams said...

Dear Riaz,

Discovery is in the insight. In your reference below, you should have included the very last line of the article I cited. When was the last time anyone told you that emerging markets were "investment grade" or "growth funds" or "income funds".

Emerging markets are high risk, and investments there are "hedged" - i.e. they are part of a much larger fund that is being hedged overall. Mobius invests in emerging market as part of his overall hedge strategy for his $40 billion investment.

Emerging markets are one of the key sections of investment funds called hedge funds. Such funds limit their sale of shares to a limited investors, and go for high risk, short term investments. They are always looking for "kiri deewar tappan" (punjabi for "which wall should I jump over to steal") and "gujrati juti chor" ("gujratis from Punjab are shoe thieves"), i.e. take the money and run.

Since short selling is not available in developing countries, Mobius' and other such funds enter only "when there is blood on the street" (Mark Mobius, about why he is investing in Iraq, 2008). If there is no blood, Mobius and other such people make sure it is there before they go in.

I know this because my personal advisor at Schwab has been pushing me to invest in their own version of global hedge funds, and Mobius' name came up.

Riaz Haq said...

Shams,

I think your understanding of the investment world appears to be quite rudimentary. You are continuing to confuse Mobius hedge fund with Mark Mobius who has nothing to do with hedge fund investing. Mark Mobius manages Mutual Funds, not hedge funds. Mutual Funds are well-regulated. Hedge-funds are not. Mutual Funds have lots of disclosure requirements under the law. Hedge funds have no such requirements.

Go read the detailed description of the Franklin Templeton's Asian Growth Fund description before further commenting. That's the fund that is buying shares in Pak Telecom, Indus Motors and MCB bank in Karachi. It's a completely different beast than hedge funds. http://www.franklintempleton.lu/pdf/funds/fdata/0805_lu_en.pdf

Riaz Haq said...

From Bloggingstocks.com

The Risk Monitor uses five-year credit default swaps (CDSs) and ranks the countries according to volatility. It uses the percent of change to determine the ranking of these countries. The new index is called the cumulative possibility of default (CPD). If, for example, a country has a 20% CPD, it has a one in five chance of defaulting in the next five years. Also included is their most recent credit rating.

Here are the top ten countries, as ranked by CMA Datavision:

* Venezuela: CPD 56.26%, credit rating BB- negative outlook
* Ukraine: CPD 52.91%, credit rating CCC+ stable outlook
* Argentina: CPD 46,06%, credit rating B- stable outlook
* Pakistan: CPD 38.11%, credit rating B- stable outlook
* Republic of Latvia: CPD 30.47%, credit rating BB negative outlook
* Dubai UAE: CPD 25.71%, credit rating BB+ negative outlook
* Iceland: CPD 24.66%, credit rating BBB- negative outlook
* Lithuania: CPD 19.11%, credit rating BBB negative outlook
* California, USA: CPD 18.97%, credit rating Baaa1, stable outlook
* Greece: CPD 18.67%, credit rating BBB+

While there may be some very promising investment opportunities in the above listed countries, it would be prudent to weigh the pros and cons against the backdrop of this data. You may decide to pass up all investments in these countries. You may decide that the risks outweigh the rewards and look for opportunities in other developing countries.

anoop said...

An article about the correlation of structure of the Pakistani society and the hindrance it causes to investment. The person in the article says,"You guys will never understand us. We make money to spend it not like you guys who earn to horde. This is why we progressed and you did not.To answer your take on alcohol and so-called other entertainment by which you probably meant prostitutes, I will say we are neither addicted to alcohol or prostitutes. We enjoy these things as you enjoy tea and company. The difference may be that we have female friends along with males, which is rare in your societies. Buying alcohol from five-star hotels feels just like stealing and drinking like thieves. We want to go out to bars of different kinds where we can see and meet different types of people and enjoy their company for a while."
When the author points out Saudi Arabia as a place the West invests the person replies,"Thank you. I was expecting this excuse much earlier. This is a favourite excuse Pakistanis use. But let me tell you that Israel may be too cruel for Palestinians, but it is an open society like any European nation. Saudi Arabia can afford any ideology because of its oil wealth and tribal society. Furthermore, not many investors go there except oil companies and the Saudis have created free zones for foreigners that Pakistan cannot. Your society is very poor but relatively open-minded. You can neither feed them like Saudi Arabia nor create islands for foreigners because society is very vocal. You are stuck by imposing an ideology that you cannot afford. Therefore, you will remain stuck even after the Taliban are gone. And, the worst part is that even intelligent people like you do not appreciate the gravity of the problem."

West needs the right environment to invest. Not just great infrastructure. It needs a good,thriving,pluralistic and progressive society too.

http://dailytimes.com.pk/default.asp?page=2009\12\23\story_23-12-2009_pg3_3

Riaz Haq said...

anoop: The investor Manzur Ejaz has focused on offers one man's opinion, not representative of all foreign investors, as obvious from my post and news of FDI and portfolio investment inflows in spite of all the problems. Different investors have different levels of risk tolerance and make different choices given the same set of data. After all, the KSE-100 did go up by about 50% this year.

Here's what Mark Bendeich of Reuters wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune.
Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

anoop said...

Riaz,
I am saying that particular aspect is a hindrance and it will not stop investments in Pakistan. Society in Pakistan has to become a lot more secular and pluralistic to attract foreign tourists along with their money. Infact, its a problem with many Islamic countries. Turkey being a secular republic as opposed to a Islamic Republic doesn't count.

Riaz Haq said...

The Nation newspaper is reporting that "Swiss Director General Foreign Affairs for Asia, Pierre Comeernous has said that Karachi is a profitable city for Swiss business companies and they have made enormous investment here.
Impressed with the speedy development that has taken place in Karachi, the Swiss companies are showing interest in making further investment, he said while talking to City Nazim Mustafa Kamal at Civic Centre here Tuesday.
Mr Pierre had called on the Nazim at the head of a high level delegation and held exchange of views on matters of mutual interests.
His delegation included Swiss Ambassador in Pakistan Markus Peter, Consul General Martin Bienz, Deputy Head of Mission Nicholas Platiner.
Mr Pierre observed that Karachi is not only an important city of Pakistan but it enjoys a significant position in the Region and with investment and development here would bring stability not only in Pakistan but also in the region.
He said that the development works implemented here during the last 4 years have been praised world over and this has attracted the investors and business companies world over and particularly from Switzerland and they are showing interest in making investment here.
The Swiss DG for Foreign Affairs for Asia appreciated the philosophy of MQM that middle class leadership should be brought forward so that problems of common citizens are focussed and solved."

Riaz Haq said...

The telecom sector in Pakistanis continues attract large foreign direct investments of billions of dollars, according to Pak Telecom Authority report of Dec, 2009.

Just the new mobile operators alone are planning to invest $2.4 billion in 2010 to build communications infrastructure.

Riaz Haq said...

Here is a recent Dawn report on Karachi stocks performance:

Foreign investment in the staggering sum of $57 million in two weeks, an unusual phenomenon, is acknowledged by brokers and analysts as the engine that has driven the market to the height.

Broker-turned-industrialist Arif Habib said that foreign funds had recognised Pakistan as a lucrative destination because of improved corporate profitability; a respite in internal political feuds, attractive valuations and high yields.

“The Pakistani stocks give out a yield of 5.5 per cent and the shares of profitable companies are trading on price-to-earnings multiple (PE ratio) of seven times the forward earnings. That compares well with the yield of two per cent and p/e ratio of 17 times in the regional markets including India,” Mr Habib said.

Riaz Haq said...

Here's the latest BMI research report on Pakistan's Telecom market:

BMI forecasts that the mobile sector will achieve a total of 98.558mn subscribers at the end of 2009, after the Pakistan Telecommunications Authority (PTA) and operators reported a total of 95.909mn subscribers in the market as of September 2009. Between YE08 and September 2009, the number of net additions totalled 6.002mn, which was significantly lower than the 13.339mn net additions in the YE07 to September 2008 period. Much of the difference is related to the government’s re-registration programme, as well as taxation on operators.
With the re-registration programme over, and operators involved in rebuilding their subscriber bases, BMI views growth of the mobile sector to continue over the next five years ended 2014. Operators such as Mobilink have focused their efforts on acquiring new subscribers, retaining the loyalty of existing subscribers, while also strengthening their brand image through key campaigns carried out during Independence Day and Eid. Second-ranked Telenor, which managed to overtake Ufone in Q209 and having previously been overtaken by the PTCL-owned mobile unit in Q308, has deployed attractive services such as its mobile banking, ‘easypaisa’, to encourage customers to its network.
The government has also reviewed the taxation policies in place on the mobile sector, and from which it gains a substantial chunk of its foreign direct investment (FDI) from. By strangling operators with higher taxes, it came to the realisation that neither operators, customers or the government would benefit. As of July 1 2009, the government reduced federal excise duty on mobile usage to 19.5% from 21%, as well as reduced the new SIM activation tax from PKR500 to PKR250. This is certainly good news and should help to build up the sector.
Furthermore, we have also noted that the PTA has sought to introduce MVNOs to the market. The licence fees have been set at US$5mn each. There appears to be little interest so far, given that there are no fewer than six operators, with competition between them particularly aggressive. Indeed, press reports report rumours of consolidation in the market, pointing to Telenor as a potential purchaser of Warid Telecom, although the Norwegian operator has denied the comments. It is not the first time, however, that talk of consolidation has occurred in the sector.
Meanwhile, we continue to witness the encouraging growth of the broadband market in Pakistan, breaking the half a million barrier in September 2009. This is being largely driven by the WiMAX technology, which has been rising at a faster rate than DSL, FTTH or EV-DO. With two-thirds of the Pakistani population residing in rural areas where there is a shortage of fixed lines, the need for wireless alternatives is clearly on the rise. In view of this, the government should accelerate the award of 3G licences, which had been expected in 2009, but is now expected in 2010.

Riaz Haq said...

Seeking Alpha webite is reporting that a Pakistan ETF is in the works.

Global X, the developer of several sector-specific China funds, has filed for several new country-specific funds, continuing its push to develop a line of innovative international funds. Among the most interesting of the batch are funds targeting Norway, Pakistan and the United Arab Emirates. While most details are still not available for these proposed funds, a look at the outline provided in the prospectus of the economies on which they will reportedly focus provides some insights into the risk and return profiles (it should be noted that not all funds for which a prospectus is filed are eventually launched, so it’s entirely possible these ETFs never make it to market).

Riaz Haq said...

Here's an interesting except from analysis of Pakistan, calling it the Next BRIC, by theglobalguru.com:

...much like Russia, Pakistan also has been one of the top-performing stock markets over the past decade. Had you been able to invest in the Karachi Stock Exchange at the turn of the millennium, you'd be sitting on a much bigger pile of profits than, say, if you had invested in the “China miracle.” Pakistan offers yet another lesson in how gleaming skyscrapers offer little guidance in predicting future stock market performance.

Investing in Pakistan: Surprisingly Big

Teeming with 169 million souls, Pakistan is the world's sixth-largest country by population. That makes it smaller than Brazil , but larger that Russia, as well as the “Next BRIC” candidates, Turkey, Mexico, South Korea and Egypt. Bordered by Afghanistan and Iran in the West, India in the East and China in the far Northeast, Pakistan is just about the size of France and the United Kingdom combined.

Pakistan's real per capita GDP of about $1,250 makes your average Pakistani slightly poorer than his counterpart in India -- and far behind the average in booming China. One third of Pakistan's population lives in poverty, and only half of the population is literate. Yet, Standard Chartered bank estimates that Pakistan has a middle class of 30 million that now earns an average of about $10,000 per year. And adjusted for purchasing power parity (PPP), Pakistan's per capita GDP approaches $3,000 per head. But take away that bit of economic affirmative action, and Pakistan's economy drops from the size of New Jersey's down to that of Alabama.

Investing in Pakistan: Edgy Relations with Uncle Sam

In the bad old days of the Soviet Union, Pakistan was a major U.S. ally. That relationship soured after the United States imposed sanctions on Pakistan after it refused to abandon its nuclear program. The “War on Terror” changed all that. After Pakistan ended its support of the Taliban regime in Kabul, American economic and military aid to Pakistan soared to more than $4 billion within three years of the 9/11 attacks. Indeed, American aid has played no small part in helping Pakistan's economy flourish over the past decade or so.

But as with most forms of handouts, gratitude is the least heartfelt of emotions. Anti-Americanism in Pakistan’s free media is just about as virulent as neighboring Iran. The Wall Street Journal’s Pakistan correspondent was ejected from the country after being charged with spying for the United States and Israel. The U.S. State Department advises U.S. citizens not to visit the country and has forbidden the families of its diplomats in Pakistan to visit since 2002.

Investing in Pakistan: A Solid Start to the Millennium

Economically, the first decade of the 21st century has been good to Pakistan. Thanks to economic reforms introduced in 2000 by the former Musharraf government, Pakistan has privatized $5-billion worth of assets, simplified its tax system and attracted large amounts of foreign direct investment (FDI) compared to its GDP. By mid-2005, the Pakistani economy was growing by 8.6%, and the World Bank named Pakistan as the top reformer in its region and among the top 10 reformers globally.

That changed abruptly with the onset of the “Great Recession.” Pakistan's ensuing balance-of-payments crisis and runaway inflation forced the IMF to step in, and offer a $7.6-billion emergency financing package in late 2008. To its credit, the Pakistani government kept its side of the bargain, maintaining its foreign exchange reserves above target and its fiscal deficit below. The Pakistani economic crisis has eased substantially, and in 2010, the economy is expected to grow at least 4%.

... The stock market index in Karachi has risen by more than 1,000% since 1999. And in 2002, Pakistan was the top-performing stock market in the world.

Riaz Haq said...

A recent World Bank report on housing in South Asia mentions lack of housing finance as one of the key impediments to more low to middle class housing.

It says that "Pakistan's finance-to-GDP ratio in below 1 percent. The ratio in developed countries is 50-70 percent, and 7 percent in India."

It adds that "in spite of active and robust financial sector reforms led by the State Bank of Pakistan [SBP] in the recent decade, the unweildy land administration environment, unprecedented rises in land prices, and inadequate mortgage lender experience with lower-income housing have prevented the market from advancing in the provision of housing and housing finance solutions."

Riaz Haq said...

Templeton Asset Management Ltd. is buying shares in Pakistan, the worst-performing stock market globally this month (August 2010), after the nation’s worst-ever floods prompted a sell-off, investor Mark Mobius told Businessweek:

About 1,600 people have been killed and 20 million lost homes, farms and livelihoods as heavy monsoon rains sent flood waters across the South Asian nation. The disaster may cut Pakistan’s economic growth in half, Finance Secretary Salman Siddique said Aug. 13, with expansion falling as much as 2.5 percentage points short of a 4.5 percent target.

“There will be an impact on growth but company valuations are very, very attractive now and therefore we continue to invest in Pakistan despite all the negatives,” Mobius said in an interview in Singapore yesterday. “The bottom line is that Pakistan is not going to go away. We want to buy stocks that look cheap as prices come down as a result of the flood.”

The Karachi Stock Exchange 100 Index has dropped 8.7 percent this month, the most among 93 benchmark indexes tracked by Bloomberg globally. The gauge is valued at 7.1 times this year’s estimated earnings, making it cheaper than any other Asian or emerging-market benchmark index tracked by Bloomberg.

The Karachi index climbed as much as 1.2 percent, the most in a month, and traded 0.7 percent higher to 9,604.65 as of 11:37 a.m. local time on speculation that recent losses were excessive. The gauge plunged 2.9 percent yesterday, the most in more than two months.

‘Oversold’

“The market was oversold from yesterday and news of Mark Mobius’s plans to buy Pakistani Stocks because of their attractive valuations supported overall market sentiments,” said Khurram Schehzad, head of research at Invest Capital & Securities Ltd., in Karachi. “Local investors are encouraged and realize the prospect of future gains.”

The World Bank yesterday pledged $900 million in financial support to Pakistan, joining the United Nations, the U.S. and other countries in providing aid.

Mobius, who oversees about $34 billion in developing-nation assets as executive chairman of Templeton’s emerging markets group, said the investment company favors banks and energy companies within Pakistan. He didn’t identify any companies.

Templeton owned more than 5 percent of MCB Bank Ltd., the nation’s biggest lender by market value, as of June 30, according to data compiled by Bloomberg.

MCB gained 1.7 percent to 185.50 rupees today, trimming losses for the year to 7.1 percent. Oil & Gas Development Co., Pakistan’s biggest energy explorer, rose 1.3 percent, extending its 2010 gains to 23 percent.

Riaz Haq said...

Pak Suzuki Motors (PSMC) to gain from Punjab govt's yellow cab scheme, according to The News:

KARACHI: Pak Suzuki Motor Company (PSMC) stands to gain from the Yellow Cab Scheme announced by the government of Punjab in its budget for 2011/12, analysts said.

The provincial government has announced that a grant of Rs4.50 billion has been allocated for the scheme, which will partly finance 20,000 vehicles.

Contrary to the yellow cab scheme, the Nawaz Sharif government introduced in 1992/93, this scheme relies on locally-made vehicles.

‘Mehran’ and ‘Bolan’, the two most popular makes of Pak Suzuki, have been short-listed for the scheme.

The analysts said the ultimate beneficiary will be the PSMC, which has been suffering from appreciating yen, relaxation in import policy and production constraints since a tsunami-hit Japan.

Gross profit margin of the company has squeezed to mere two percent in 2010, which was around four percent a year back, they added.

Details of the scheme are yet to be unveiled, but it is expected that the vehicles would be 50 percent financed by the government of Punjab, while the buyer would have to pay the rest.

There are concerns of possible lack of transparency in financing.

Besides, there is a lack of clarity about the time period over which the scheme would be spread.

Furqan Punjani, an analyst at the Topline Research, said that there are possibilities that out of 20,000 only 12,000 to 15,000 units will go in the said scheme and the rest might fall victim to corruption.

An analyst at Arif Habib Research said that it is believed that PSMC’s car volumes would spike by nine percent and 16 percent in CY11E and CY12F.

Consequently, the earning pershare (EPS) of the company would improve by 75 percent and 116 percent in CY11E and CY12F, respectively, he said.


http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=53955&Cat=3&dt=6/23/2011

Riaz Haq said...

Emerging market specialist investor Mark Mobius sees investment opportunity in Pakistan as China-Pakistan alliance grows, according to Business Recorder:

Pakistan is set to benefit from its strategic importance to China, which is seeking to cement relationships with countries surrounding India, Franklin Templeton's Mark Mobius said. "They are trying to secure their lines of transport and communication," he said.

"That means Pakistan is quite critical." Mobius said he wants to start investing in Libya in the next 12 months as the oil producer emerges from civil war and looks to outside investment. The country of six million people benefits from oil resources, potential for tourism and a large land area, the veteran emerging markets investor told journalists on Monday, adding that it had a very well-run stock market.

Riaz Haq said...

Here's an Express Tribune report tiled "Nokia Sees Pakistan Becoming a High-Growth Market":

KARACHI: Foreign delegates and local entrepreneurs discussed challenges facing businesses, sought greater industry-academia collaboration and highlighted business models to succeed in an emerging market at the 12th Management Association of Pakistan (MAP) Convention on Leadership Challenges for Business Success here on Wednesday.

Emerging markets will account for 80% of the world’s growth the next decade and Pakistan will be an important emerging market in future, Senior Vice President of Nokia India, Middle East and Africa Shivakumar said in a speech titled “Winning in emerging markets”.

Speaking to a conference packed with businessmen, Shivakumar – who is also the senior vice president of All India Management Association (AIMA) – said growth in developed economies has slowed down dramatically and the world is now looking at emerging markets, which account for 42% of population and 13% of income.

Pakistan is listed in four categories of emerging markets including Dow Jones 35 and emerging and growth level economies (EAGLES), he said. “Pakistan will be an important high-growth emerging market.”

In order to succeed in an emerging economy, he said, it is important to understand its segments and consumers. The emerging market consumers – most of whom live under $2 a day – are value-sensitive and not price-sensitive, he said and added entrepreneurs have to work on their business models to accommodate that segment of consumers who believe in the doctrine of “pay more, get more” and “pay less, get less”.

Sharing his experiences, he said, there are three things that he applied and succeeded. “Always put the country’s interest first, keep fixed costs very low and turn as many cost variables as possible,” he said.

“Never cut the features and offer your product at half the price. Consumers don’t want an incomplete product.”

Speaking to the participants earlier on, event’s chief guest and State Bank of Pakistan Governor Yaseen Anwar said it is time for all business leaders and managers to take the lead. Leaders must be more aware of the challenges facing the country – inflation, unemployment and power crisis.

There are no shortcuts to sustained economic development, Anwar said. “We need to develop the right strategies and then translate these strategies into action.”

AIMA President Rajiv Vastupal also addressed the event, saying IMF has lowered growth projection for both 2011 and 2012. “Today’s corporate leaders must focus on innovation to counter the global economic challenges,” he said. He elaborated the successful example of Apple’s iPad, which was launched during recession and earned a great success.


http://tribune.com.pk/story/306766/nokia-sees-pakistan-becoming-a-high-growth-market/

Riaz Haq said...

Here's an excerpt on Pakistan from a recent Worth magazine piece posted on Goldman Sachs website:

THE MENTION OF PAKISTAN
PROMPTS MEMORIES OF OSAMA BIN LADEN and worries about current instability more readily than it does investment opportunity. “But a large portion of Pakistan is relatively stable, and it’s a country that’s growing rapidly almost in spite of itself,” says Paul Herber, portfolio manager of the Forward Frontier Strategy Fund.
Pakistan’s local oil and gas companies are a promising investment play. Unlike other N11 nations, where these resource companies are government-owned and give investors little access, “a lot of Pakistan’s oil and gas companies are public,” Herber says. The country is by no means a big global oil producer, but with 170 million people—more than Russia— growth in domestic demand is likely to boost the domestic industry, Herber says.


http://www.goldmansachs.com/gsam/pdfs/USTPD/education/092911_WO13_Goldman_Sachs_PDF.pdf