Thursday, January 14, 2010

Karachi Tops Mumbai in Stock Performance

Karachi shares market significantly outperformed Mumbai in the last ten years. But this fact is not enough to get any positive attention from Fareed Zakaria, India's best-known cheerleader in the West.



As expected, Fareed Zakaria's discussion of "The Rise of the Rest" sings praises of the BRIC nations, particularly mentioning his native India in the most glowing terms. There is nothing wrong with that, except that Zakaria omits any positive mention of India's neighbor Pakistan in the context of economic performance in the decade of 1999-2009, and chooses to strike familiar themes of "Islamic jihadists" and "terrorism" when he does make any references to Pakistan.

What Zakaria has omitted is the story of the extraordinary returns Pakistan has produced for investors. Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to about 80 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81. If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $900 today, while $100 invested in the Mumbai's Sensex stocks would be worth $274. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms, in a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world.

Unlike Zakaria and his fellow media Indophiles in the West, however, the smart investors are paying attention to the outsized returns produced by the Karachi Stock Exchange listed companies. Not only has Goldman Sachs reaffirmed Pakistan's place on the list of its top 15 emerging economies for 2010, smart international investment gurus are investing in Pakistan. For example, Mark Mobius of Franklin Templeton International Funds recently said he is "overweight compared with everyone else" in Pakistani stocks.

In late 2008, Pakistan asked for IMF's help in recovering from a severe economic crisis resulting from political turmoil and a balance of payment crisis. The Letter of Intent that Pakistan's PPP-led government signed with the IMF for the $7.6 billion bailout acknowledged that Pakistan's GDP jumped "from $60 billion in 2000-01 to $170 billion in 2007-08 with per capita income rising from under $500 to over $1000". The LOI with IMF also acknowledged that "Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01. The government's debt fell from 68% of GDP in 2003-04 to less than 55% in 2006-07, and its foreign-exchange reserves reached $16.4 billion as recently as in October (2008)."

Pakistan's KSE-100 shares trade well below the price-earnings of Mumbai or Shanghai, and its KSE's market cap is only a fraction Pakistan's GDP, which is a healthy sign for future increase in valuation. By contrast, the Indian stock market capitalization already exceeds India's total GDP. That's the sign of a bubble that can not be sustained for long.

Lower current valuation relative to BRIC markets means that there is greater potential for growth and higher returns on investments in Pakistan in the future. That's what many smart professional investment firms such as Franklin-Templeton and Goldman Sachs are expecting by being bullish on Pakistan.

Pakistan has defied low expectations repeatedly in the past. Let me quote 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."


Pakistan is just too big to fail. In spite of all of the serious problems it faces today, I remain optimistic that country will not only survive but thrive in the coming decades. With a fairly large educated urban middle class, vibrant media, active civil society, assertive judiciary, many philanthropic organizations, and a spirit of entrepreneurship, the nation has the necessary ingredients to overcome its current difficulties to build a strong economy and a democratic government accountable to its people.

Related Links:

Is Pakistan Too Big to Fail?

India and Pakistan Contrasted 2010

Goldman, Franklin-Templeton Bullish on Pakistan

The Rise of the Rest by Fareed Zakaria

Why Colombia's Stock Market Beat China's?

Goldman Sachs "Next 11"

Emerging Markets Expert Investing in Pakistan

Who Are the Next 11?

GS Next 11 and Pakistan in 2050

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

Pakistan's Higher Education Reform

The Next 11 Emerging Economies--Euromonitor

Karachi Stock Exchange Presentation

Is KSE Poised For Major Crash?

Dalal Street Call: Keep the Faith

50 comments:

Anonymous said...

the size of the KSE is not really in the same league that would justify being clubbed with BRIC each of these markets has a float of $600bn + thus much more opportunities.

Also the Pak Rupee has depreciated so the returns are notional in pakistani rupees only.

Besides the Pak economy is unlikely to hit good growth numbers for atleast 3-5 years due to deteriorating situation at home.

Riaz Haq said...

anon: "BRIC each of these markets has a float of $600bn + thus much more opportunities."

It's partly because Pakistan's KSE-100 shares trade well below the price-earnings of Mumbai or Shanghai, and its KSE's market cap is only a fraction Pakistan's GDP. It just means there is more potential for growth and higher returns in Pakistan.

anon: "Also the Pak Rupee has depreciated so the returns are notional in pakistani rupees only."

Pak rupee remain extremely stable for most of the period of 1999-2009 at about 60 rupees to a US dollar, only slipping more recently in 2008-2009.

Even then, KSE-100 grew 54.9% in US dollar terms and 65.9% in rupee terms in 2009.

anon: "Besides the Pak economy is unlikely to hit good growth numbers for atleast 3-5 years due to deteriorating situation at home."

That's your wish, but we'll see what happens. Pakistan has defied low expectations repeatedly. Let me quote 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."

Anonymous said...

It's partly because Pakistan's KSE-100 shares trade well below the price-earnings of Mumbai or Shanghai, and its KSE's market cap is only a fraction Pakistan's GDP. It just means there is more potential for growth and higher returns in Pakistan.

umm P/E ratio of kse can't be comparable to stock exchanges of countries that are growing at 8%+(CN) and 7%+(IN) now can they?

I don't quite understand how stocks in an economy growing at 2-3% with lots of political tensions(there's a shooting war with planes and tanks going on!) can be considered undervalued on the back of a 50%+ appreciation.
How much of this appreciation is due to actual FII and how much is round robin investment of Pakistani black money rounded through Dubai I wonder.

Anonymous said...

This is strange, given that WSJ, BusinessWeek, Economist, Forbes have all been far more gung ho on India than Pakistan. In fact except for news on terrorism, Pak is hardly mentioned. So why pick on Fareed.

Riaz Haq said...

anon: "I don't quite understand how stocks in an economy growing at 2-3% with lots of political tensions(there's a shooting war with planes and tanks going on!) can be considered undervalued on the back of a 50%+ appreciation."

Pakistan's problems are reflected in the valuations of the KSE-listed companies. Even after appreciation last year, the P-E ratios Pakistani blue chips are about half of the Mumbai listed blue chips.

anon: "So why pick on Fareed."

Because he is the best-known among journalists who effusively praise India and demonize Pakistan.

I think Fareed Zakaria is an unabashed cheerleader for India, lacking any objectivity as a journalist. He threw many softball questions at Manmohan Singh during his recent visit to Washington, asking him to badmouth Pakistan and China and repeat the familiar Indian positions, without ever bringing up the issues of poverty and deprivation in India, or challenges for Indian democracy. No mention of the Maoists insurgency that the Indian PM himself has described as the "greatest challenge to India's security" since independence.

Finally, it was Manmohan Singh who mentioned that India needs to sustain economic growth to bring "millions and millions" of people out of poverty.

Indians are lucky to have a leader like Manmohan Singh who knows what's important for his countrymen and does bot avoid talking about it even if it's unpleasant.

Anonymous said...

Indians are lucky to have a leader like Manmohan Singh who knows what's important for his countrymen and does bot avoid talking about it even if it's unpleasant.

Quite the contrary. Indians are lucky to have a representative system that is deepening to include the most downtrodden. MMS has no choice but to include them in his planning - vote bloc you know. Obama called America an unlikely experiment. Same is true for India. Bees are not supposed to fly but they just do.

As for Karachi vs Mumbai, hey don't expect any love just because the KSE is booming now. What about the artificial floor imposed on trading a few years ago? Who, but the most adventurous (or the most cohorted) investors want to go there? Also the KSE - by capitalization is tiny ( see here) at $30bn. The BSE - by way of comparison - is $1.8 trillion. So while there may be easy pickings for opportunists with $10m - $50m, anything larger than $100m will move the market.

And Fareed. No love from him too eh? Are you particularly miffed because he's Muslim (turncoat!), or would you be just as miffed if his name were SathyaSubramaniamDoubleDeckerBus? No denying there is an element of conspiracy in the Western media aginst the bogey du jour - Pakistan right now. But if you witness the donkeys representing Pakistan to the world it's not hard to understand the derision. Examples: Zardari and Palin, Gilani doing his elbow thingee with Sherry, Baitullah was a "patriot" (after 26/11), folks getting all worked up about KL Bill, folks getting all worked up about Deepak Kapoor, heck even Mohamed Yunus can't wait till the match is over to start complaining ...

Get over the persecution complex ...

Riaz Haq said...

anon: "Indians are lucky to have a representative system that is deepening to include the most downtrodden."

I disagree! About a third of India MPs are accused of serious crimes, included murder and rape, or already convicted with their convictions under appeal. The judicial process in India (or Pak) is slow and it can take up to thirty years to resolve, long enough for a long career in politics. Any one of these criminals could have become India's PM under the Indian consitution, while Singh could not have been elected on his own even as MP, without the strong support of the hereditary queen of India, Sonia Gandhi or her Crown Prince Rahul Gandhi.

Besides, in spite of leaders like Singh and Sonia, Indian democracy has done little to alleviate the hunger, pain and poverty suffered by the largest and most deprived population of the poor in the world who call India home.

anon: "The BSE - by way of comparison - is $1.8 trillion."

And you think having a market cap larger than India's GDP (in US dollar terms) is a good thing? As an investor, I'd see it as a bubble ready to pop and stay away from it.

Riaz Haq said...

anon:"NYSE market cap is roughly $25 trillion that's around twice US GDP & this doesn't include stuff listed on NASDAQ"

Market cap 2X of GDP is not sustainable. That's why the performance of US stocks has been sub-par and investors are looking at emerging markets.

Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Zen, Munich, Germany said...

@Riaz
"http://in.reuters.com/article/companyNews/idINKLR16790720080110"

If an article of that title(Pakistan's paradox: bombs, blood and record profits) had appeared about India, you would have hailed it as a failure of Indian state, wouldn't you? I would like to ask you the same question that you are keen to ask about India - has the rise of KSE benefitted those Pakistani's who riot for food or work in the feudal agriculture sector?

"Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to about 80 rupees to a dollar."

You are massaging the numbers here. Pakistani Rupee traded at around 50 to $ in 1999. So that is a fall of around 60%!.

I cant imagine any sane institutional investor keeping his money in a country whose currency depreciated 60% over 10 years, had 3 different types of Government and where Jihadi terrorists atttack pretty much anything they wanted.

For the sake of argument, one can say that for diversification and more return, one could have kept a very small part of ones portfolio in KSE. ie, less than 0,5% or something. Otherwise, I would like to see all those patriotic Pakistanis in the West put their own Money in KSE first - which I am sure they wont - they'd rather trust SnP or FTSE or even BSE rather than their home stock market. Also you seem not to consider Country Beta and liquidity(based on trading volume and reputation), which are the most important criteria for international emerging market investor.

As for Fareed, why would he, as an Indian, sing praise for Pakistan when noone else does? If he malign Pakistan, then you can defend, but he is free to ignore Pakistan otherwise when there is abundant things going on in the financial markets in his hometown Bombay..

Riaz Haq said...

Zen: "has the rise of KSE benefitted those Pakistani's who riot for food or work in the feudal agriculture sector?"

The rise of the KSE-100 has not directly helped the poor folks, who have little or no savings to invest, but the economic growth and profit growth that drove the KSE-100 has also created millions of jobs that helped reduce poverty to under 20% in 2007-2008(vs over 40% in India, and reduced hunger and malnutrition relative to Pakistan's neighbors. In fact, the rich-poor disparity in Pakistan is the lowest in South Asia, partly because the tide of economic growth has helped lift all boats.

anon: "You are massaging the numbers here. Pakistani Rupee traded at around 50 to $ in 1999. So that is a fall of around 60%!."

Pak rupee fell from 50 to 60 to a dollar from 1999 to 2008, and then fell from 60 to 80 in about 18 months. In spite of that the KSE-100 rose 55% in US dollar terms in 2009. No matter how you look at it, the KSE-100 has trounced Mumbai and Shanghai from 1999-2009.

anon: "Otherwise, I would like to see all those patriotic Pakistanis in the West put their own Money in KSE first - which I am sure they wont - they'd rather trust SnP or FTSE or even BSE rather than their home stock market."

Many Pakistanis, including me, would like put more money in KSE-100, but there are no such funds available at least in US that invest purely in Pak equities. Many Asia-focused growth and income mutual funds put in about 5% or less of their money in KSE-100 shares.

anon: "As for Fareed, why would he, as an Indian, sing praise for Pakistan when noone else does?"

Fareed should do it for his own credibility as an "independent" and "objective" journalist.

Anonymous said...

Market cap 2X of GDP is not sustainable.

Why not? market cap is a function of expected future earnings of those companies most large US companies get something like 50%+ of their revenue outside the US so it is very much sustainable.

The reason the dow is down this decade has a large no of factors(wars,fiscal deficit,financial crisis,9/11,demographics etc etc)

but there is no theoretical limit based on any economic theory as to how much a stock exchange market cap should be vis a vis the GDP.

Zen, Munich, Germany said...

@Anon

"but there is no theoretical limit based on any economic theory as to how much a stock exchange market cap should be vis a vis the GDP."

Stock market is not a science, so there is no theoretical limit. But one reason why Dow and SnP did not go anywhere in the last decade was that it started the decade in 1999 with an unreasonable valuation. Companies can grow in the long run only at the rate of growth of GDP.

@Riaz
I personally would have been more than happy to invest in KSE and outperform the market, but there are number of serious factors why international investors dont touch Pakistan. Riaz may immediately come up with some Fund newsletter which advises to invest in KSE, but he himself admits that there are not even any international mutual funds that invest exclusively in KSE. There is no conspiracy to promote BSE against KSE, institutional investors look into country beta and other geographic risk which obviously is higher in Pakistan. So they are willing to put only a small capital, if any at all into KSE.

In any case, when it comes to total market cap, liquidity, profile of companies and integration to global markets, BSE is not a good comparison to KSE. KSE could rather be compared to markets like Vietnam or Middle east whereas India could be compared with its fellow BRICs. If there is a real correction in Sensex, I would rather invest there as I find a number of factors there which makes me think that in the long run India is stronger that China. In China there is overinvestment and excess capacity coupled with a relatively elder population whereas in India, we have underinvestment and inefficiency with a consumpation hungry younger population. If India has more room to invest and grow, China has more risk to cool down and balance.

Riaz Haq said...

Zen: "BSE is not a good comparison to KSE. KSE could rather be compared to markets like Vietnam or Middle east whereas India could be compared with its fellow BRICs."

I personally think there is a lot more risk in BSE and other BRIC markets, simply because of the extraordinary valuations driven by media hype and high expectations, and the assumption of perfect conditions ahead.

On the contrary, the risks in Pakistan's KSE are much lower because all the bad news is already reflected in the valuation.

Anonymous said...

Companies can grow in the long run only at the rate of growth of GDP.
?????

Why?

Companies rate of growth is a function of global demand for their products and services in a globalized environment there is very little correlation with national GDP of any successful multinational.

If that was the case then tiny countries could never spawn world beaters like Nokia, Nestle, Schindler, ABB etc

Zen, Munich, Germany said...

@Anon

"Companies rate of growth is a function of global demand for their products and services in a globalized environment there is very little correlation with national GDP of any successful multinational.

If that was the case then tiny countries could never spawn world beaters like Nokia, Nestle, Schindler, ABB etc"

It is non sense to take companies such as Nokia, Nestle etc. and compare with the GDP of their native companies as these companies despite having headquarters in their small home country, derive most of thier revenues abroad. But they can grow only at the rate of growth of World GDP in the long run in a free and fair system as other companies will inevitably try to imitate them and eat into their profits or fearful governments will impose regulations to companies becoming a monopoly.
Even then, look how much of Nokia's excess fat profits have been eaten by Samsung and HTC in the last few years. The same happened to IBM, Walmart etc. which after having explosive growth has now settled for 3-5% per year. Sometime some companies and industries are unfairly protected by barriers or subsidies set by their nationalistic governments and then of course they can grow at faster rates.

anoop said...

I think,
1) Riaz has Fareed Zakaria envy.
2) KSE has BSE envy.
3) Riaz hates the hell out of India and cant reconcile to someone,even a neutral ,like Zen here, to praising India. In this case, Zen says,BSE offers better chances of making money in the long run than the KSE.

I wonder why Riaz is so unsecure to compare every single thing with India? And, most often than not he paints a fantastic picture of Pakistan(this post being an example) and a very dull picture of India. But, none of the major publications of the world(Lets forget Fareed for a second here) seen to catch the theme that Riaz sees so often.
I also wonder if Riaz hates Fareed Zakaria because he is a Muslim who bats for India a country of 80% Hindu against Pakistan 97% Muslim population. If thats the case its too bad. But, if its not how come Riaz only picks on Fareed and not other India-lovers out there in the western media?

Saurav said...

@Anoop: Well said mate.....posted the same thing in an earlier "musing" of Mr. Haq. He compares every silly thing of Pakistan with India and then brags about Pakistan while beating the hell out of India....
Haq saheb, i would myself invest in KSE rather than BSE, but the market dynamics just dont encourage me, however you justify :-)

Riaz Haq said...

anoop and saurav:

Youv reactions are highly predictable.

I knew you, as hypernationalist Indians, would not take too kindly to any data that shows Pakistan has performed better than "Shining India" in any thing, whether it be the shares market, basic food, shelter, clothing, infrastructure, urbanization, etc etc.

But the facts are what they are. Ten years worth of data can not be fluke. This data showing KSE outperformed BSE can not be dismissed by any one interested in high returns.

You can sulk all you want, but many smart investors of KSE-100 are laughing all the way to the bank, and investing more as evident by the 55% increase in KSE-100 in 2009.

Zen, Munich, Germany said...

@Riaz

A trillion dollar stockmarket and poverty deaths points to inequitable wealth distribution in India(like in Pakistan).
But BSE and KSE are odd comparisons per se. I don't think that many rational Pakistani Americans would commit all their capital to KSE, unlike many NRIs who are nowadays bold to commit all their money in Indian stock market and real estate.
Last time I read about KSE in Reuters several months ago. At that time, one Western bank(cant remember the name) revealed that they would be investing in KSE in what they called "information gap trade". That is, they suggested that there is money to be made there, but few investors are aware of it. What surprised me at that time was that the bank was not talking about the risk/reward ratio. In the very next days, I read about riots by some lawyers in Pakistan which seriously questioned the legitimacy of the govt. there and Pak. Rupee collapsing in value. People like you can close the "information gap", but you have to set aside nationalism. I'd be keen to know why Pakistani economy did relatively better under Musharraf, that too after 9/11. One of my guesses is that the record foreign aid and remittances may have played a significant role. Otherwise, I'm not aware of any structural reforms or breathtaking innovation that pushed Pakistan ahead. Without these two, how well could Pakistan do would be interesting.

Riaz Haq said...

Zen: "the record foreign aid and remittances may have played a significant role."

This is a common misunderstanding, and sometimes it is deliberately used to mislead people by those who wish to deny Musharaf's achievements. The total amount of aid never exceeded a billion dollars, a mere pittance in a $160 billion economy. And if aid could make a difference, Haiti, Sub Saharan African nations and most of India (having received more aid than any other nation since 1950s) would not be as poor and hungry as the UNDP's poverty data and World Hunger Index indicate.

The same goes for remittances, as aid. Many more countries get a lot more remittances per capita than Pakistan. Bangladesh is an example where remittances are higher than in Pakistan, yet it's a lot poorer than Pakistan.

Zen: "structural reforms or breathtaking innovation that pushed Pakistan ahead. Without these two, how well could Pakistan do would be interesting."

There were many reforms implemented by Musharraf and Aziz that brought in FDI much larger than India's as percentage of the overall GDP. For example, the telecom deregulation created a huge boom and lots of employment which contributed significantly to the economy.

Banking privatization and reform also brought lots of foreign investment and improved services to the people. Microfinance became big in the last decade under Mush.

Huge investment were made in infrastructure and higher education that led to a much larger pool of talent for attracting telecom investments and bringing in outsourcing business. Pakistan's IT industry grew from a few hundred million to $2.8 billion.

I have written several blog posts on Mush and Aziz legacy that I'd encourage you to read.

Vishal said...

>> Musharraf and Aziz that brought in FDI much larger than India's as percentage of the overall GDP. For example, the telecom deregulation created a huge boom and lots of employment which contributed significantly to the economy.

May be it had nothing to be with Musharraf. It was just a good time for world economy as compared to when democracy returned to Pakistan.

Well anyways, coming to the key point of your post, as far as investment into stocks goes, I find your argument quite week. I mean who does not loves more growth of his investments.

But just have a look at the currently operating mutual funds:

http://www.mutualfundspakistan.com/fundsdirectory.aspx

Do you notice something:

1) There are hardly any international players in this space.

2) If you do a bit of survey, the coverage and the spread is not that much making them risky. (compare that with India and see for yourself the wide spectrum, most of which is long term in nature)

3) It is not really easy to invest. If yes, tell me how? Also the exit route.

As per your percentages, well Ok on a spread of some interval the performance could have been quite good. But then the risk is also very very high (as what I perceive).

Unless you are a day trader, or a large hedge fund manager, I find it very difficult to make a long term investment...

Riaz Haq said...

Vishal:

FDI is longer term investment in plant a equipment made by companies who look at lot of different factors to choose where to invest. These corporations don't just throw money around randomly at whim, just because they have it.

I a not sure what you are trying to prove by offering one link to a website on mutual funds offered in Pakistan showing just one day's worth of data.

There are a number of US and international mutual funds that are not offered in Pakistan to local investors, but they invest on behalf of foreign investors...such as Eaton Vance, Mathews, Franklin-Templeton, etc.
These funds are not for day traders who are in and out on a daily basis. These are longer term investments.

Ten years is a long enough period of time for people to judge returns from a particular market. And a 9X return over tens years in KSE-100 is tremendous by any measure.

But such data is of no consequence to someone like you, or others, who have different considerations for investing than serious professional investors at Franklin-Templeton or Goldman Sachs or others like them.

Zen, Munich, Germany said...

@Riaz

Higher the risk(lower the quality) of the investment, higher the returns(but also chances of a wipeout). This is a basic principle.

Stockmarket in Ukraine outperformed German DAX. Are we going to say that Ukraine stockmarket is more attractive as an investment than Germany? Maybe, but at what risk is the big question.

Riaz Haq said...

Zen: "Stockmarket in Ukraine outperformed German DAX. Are we going to say that Ukraine stockmarket is more attractive as an investment than Germany? Maybe, but at what risk is the big question."

I agree with your basic point, about risk-reward. In a diversified portfolio looking for growth, I'd prefer Ukraine over Germany because Ukraine has much more room to grow than Germany. That is the reason why there is such great interest in emerging markets such as BRIC and Next-11 (which includes Pakistan) by international investors.

Sandy said...

As has already been, Mr Haq chooses to only highlight whatever little positive facts he can muster. For instance, he chooses to mention Next 11, something that was conceived way back in 2005 by Goldman Sachs. He conveniently choose to ignore the fact tht Pakistan was named as one of the failed states by Foreign Policy Magazine in 2009.

Nevertheless, he seems to be optimistic fellow which is gud. But i fear he is just over-optimistic and misses the reality.

Riaz Haq said...

Daily Times is quoting an APP report that Pakistan is on the path of economic recovery, according to the IMF:

Pakistan’s economic growth has started to recover despite security and energy challenges and the country met almost all targets under the International Monetary Fund program, the global financial institution said on Tuesday.

“Pakistan’s program is progressing well,” the Fund said in a statement following ‘constructive discussions’ with Pakistani officials focusing on Pakistan’s recent economic performance, the outlook for the rest of the fiscal year.

Adnan Mazarei, who met with the Pakistani officials in Dubai over the past week to initiate discussions on the fourth review under Pakistan’s Stand-By Arrangement (SBA), noted that Islamabad observed all quantitative performance criteria, except for the budget deficit target, which exceeded by a small margin.

Listing positive trends Pakistan registered in recent months, the Fund said the exchange rate has remained stable at Rs 84–85 per US dollar, and the international reserves position has strengthened (the banking system’s gross foreign exchange reserves, including the State Bank and commercial banks, reached $14.3 billion in mid-February, of this total, the State Bank held $10.5 billion).

The early signs of recovery in some sectors and the improved external position are encouraging, although there are risks and challenges to Pakistan’s economic program.

“Economic growth in Pakistan is starting to recover; large-scale manufacturing output has started to increase, the improvement in the global economy has helped manufacturing exports, and private sector credit growth has picked up to some extent as businesses rebuild their working capital.

The IMF’s package for Pakistan - approved in November 2008- has been extended to $11.3 billion. Looking ahead, the IMF statement said, a resumption of higher growth is needed to raise living standards and will require improvements in the business climate to stimulate higher investment by local and foreign investors.

Emphasizing the need for stepped up donors support for the key anti-terror partner of the international community, the Fund said, early disbursement of donor financing remains crucial to support Pakistan’s stabilisation and reform efforts as well as laying the basis for a sustainable growth.

The IMF mission staff will prepare a report on the fourth review under Pakistan’s SBA, which is scheduled for consideration by the IMF Executive Board in late March. APP

Riaz Haq said...

Here's a report from Business Recorder about increasing foreign portfolio investments in KSE:

KARACHI (February 18 2010): A massive single day inflow of $6.1 million of foreign investors' portfolio investment (FIPI) at the local equity market was witnessed on February 17, 2010. "The positive developments on political front encouraged the offshore investors to take fresh positions at the local equity market", analysts said.

According to National Clearing Company of Pakistan Limited (NCCPL) date, the foreign investors bought shares worth Rs 637.86 million while they sold shares worth Rs 119.91 million on Wednesday. The cumulative inflow of this mode of investment has increased to $15.340 million during the first 17 days of the current month as compared to a net inflow of $4.1 million witnessed in the month of January 2010.

Riaz Haq said...

Here's an optimistic assessment of Pakistan's economy by PM Gilani at Karachi Expo 2010, as published by The Nation newspaper:

KARACHI - Prime Minister Yousuf Raza Gilani has said that the economic condition of the country despite international and domestic adversities has improved significantly and Pakistan’s real Gross Domestic Product (GDP) growth is likely to remain close to the target of 3.3 per cent during the fiscal year (2009-10).
“Foreign exchange reserves have risen from $6 to $15 billion and exports are expected to achieve target of US$ 20 billion. Remittances from overseas Pakistanis have reached $4.531 billion which is 25 per cent higher than last year,” he added.
Speaking at an inauguration ceremony of Expo 2010 at the Governor House here on Thursday, he said that Pakistan’s private sector was very enterprising and has repeatedly demonstrated its dynamism and resilience even in adverse circumstances. It goes to the credit of the ingenuity and enterprise of our private sector that in the face of severe global recession, were able to reduce its impact on Pakistan’s economy compared to the much severe impact suffered by the economies of several other countries in the region.
He said that the government strongly believes in market forces to open opportunities and create a competitive environment in the country. “We have continued to liberalise the economy. The reforms in the trade and investment fields stem from our conviction that the private sector of Pakistan is the engine of economic growth and should be facilitated to play its role to the fullest in creating new businesses, opening new jobs and adding value to Pakistani goods and services for the export markets.”
Gilani said that the Ministry of Commerce through its “Strategic Trade Policy Framework (STPF) 2009-12” has successfully addressed major issues like falling exports competitiveness, lack of sophistication, diversification of products and markets. STPF, a medium term plan, provides assurance for continuation of Trade Policy for three years and the businesses can plan their production and export orders accordingly. The policy has been set in motion and the initiatives are at various stages of implementation.
He said a comprehensive Textile Policy 2009-14 had also been announced to revive the textile sector through Textile Investment Support Fund (TISF) of Rs40 billion. He said that more than 500 buyers from 50 countries were attending the show this year and around 350 producers and exporters from all over Pakistan were displaying a wide variety of their products.

Riaz Haq said...

Here's an interesting explanation by India's former commerce minister Dr. Swamy of the impact of PNs, or participatory notes, on India's markets, and how PNs benefit corrupt poloiticians:

Indian economy had a set-back not because of financial contagion spreading from US, or because of the interdependent global trade system, but because of our own perfidious financial derivative called Participatory Notes [PNs] compounded by an anti-national agreement with Mauritius to permit even $ 1 paid-up companies incorporated in that country to invest in Indian stock markets and not be subject to capital gains tax. This was a “gift” from previous Finance Ministers, Yashwant Sinha and P. Chidambaram.

The Finance Ministry’s PN is unprecedented in world financial history. It is a piece of paper issued by designated financial institutions abroad such as Fidelity Investments and Morgan Stanley, which paper does not carry any detail except the money worth, and can be purchased by anyone with cash even without disclosing to any regulatory authority his or her name and the source of the funds! That piece of paper was acceptable for transactions in the Indian stock market for buying and selling shares as also short selling.

By a special order, the Finance Ministry under Chidambaram exempted the PNs from the purview of SEBI, RBI, Enforcement Directorate and CBI ! The SEBI headed then by Damodaran protested and repeatedly wrote to the Ministry to permit it as in any other stock market transactions to require reporting of the buyer and the seller as also the source of funds. The Tarapore Committee on Financial Reforms strongly condemned PNs and wanted it scrapped. The RBI Governor Reddy kept warning of dangers from PNs. All were ignored. Damodaran and Reddy were denied usual extensions of tenure. Their successors have fallen in line. Hence the perfidy continues without any accountability.

Thus, billions of dollars of “hot”money entered into the Mumbai stock exchange, that was used for buying and selling shares with PNs almost like cash, in fact better because cash transactions of over Rs.10,000 have to be reported with details to the Income Tax Department. Moreover if it came via Mauritius, it did not have to pay capital gains tax. By September 2008, PNs accounted for 60 percent of the FII funds in the stock market.

When the financial crisis was officially acknowledged in the US following the collapse of Fannie Mae and Freddie Mac, two government owned loan providers, followed by Lehman Brothers in September 2008, a liquidity crunch developed in US and later in Europe. Interest rates rose. Liquidity froze and funds were in demand. The PNs, which were “hot money” or Portfolio funds, just shipped out of India without any hindrance to the tune $60 billion in October 2008-January 2009 causing a stock market crash symbolized by the steep fall in the Sensex index. It is this that caused the financial crisis in India and not the US sub-prime loan defaults.

Why was Mauritius Tax Treaty and PNs invented by the then Finance Ministers of India ? Because it was to assist corrupt politicians and business persons to earn on their loot parked in Swiss Banks, Isle of Man, Cayman Island, Macao etc.. Till PNs came into existence this loot was just stashed away in secret accounts and they were paying service charges to the banks for keeping it secretly ! Now these bandits and pirates could earn easily on their ill-gotten money by playing anonymously on the stock market, and through consequent capital gains without having to pay taxes that honest citizens have, thanks to the Mauritius Treaty.

Riaz Haq said...

Here's an IMF official talking to Business Recorder about Pakistan's economy growing 5-8% in future years:

ISLAMABAD (February 25 2010): The biggest challenge Pakistan facing now is to improve growth rate to over 5 percent on sustained basis by overcoming structural challenges, says an IMF official. "There is no reason Pakistan can not grow over five percent on sustained basis by increasing exports and investments; all opportunities are there", said Masood Ahmed, IMF Director of Middle Eastern and Central Asian Division, in an exclusive interview with Business Recorder.

"To do so, Pakistan has to address impediments of increasing investment and to provide infrastructure, educated and skilled human capital, improve business environment, and level of governance", he said. "But in three to five years Pakistan, strongly growing on the structural reforms path, can also catch a growth rate of 8 percent, equal to its Asian rivals. That is also an average growth rate of Asia next year," he added.

Masood called for national consensus among all political parties on structural reforms so that in future these reforms should stay on course, and growth pattern should not be that much disturbed, and the government should show more political will in implementing these reforms. "Pakistan needs tough political decision to take on reforming its commercial entities, cutting its losses", Masood said.

Good macroeconomic practices to ensure strong pubic finances and competitive exchange rate to bolster high growth are also essential, he added. Pakistan grew 2 percent last year; has estimated to grow at 3 percent this year; and the Fund forecast to get to 4 percent next year. Unlike previous years' growth, based on consumption, future growth should be based on exports and investments.

In a scenario of growing global growth at 4 percent from negative 1 percent last year, exports demand would grow and competitive price advantage would support local exporters, making up for modest growth this year. "But, this is not enough, and Pakistan can achieve 8 percent of growth in coming years if structural reforms are really undertaken," the IMF Director said.

Pakistan government can save up to 8.5 percent of GDP to deploy from increasing tax revenue, and reduce losses of public sector inefficient enterprises. "Resources that are currently wasted in the loss, making public enterprises and taxes that are collecting taxes that are not collected, making public spending more efficient are estimated by Finance Ministry is over 8 percent of GDP which are almost $12 billion", says Masood, quoting Finance Ministry reports.

These resources could be deployed to finance the much-needed infrastructure, reliable electricity provision, better health and education for millions of Pakistanis, he added. Among other challenges, international oil prices can augment again next year posing balance of payments problems and inflation which had once come down to 9 percent. He said the government should also be reducing fiscal deficit, which is around 5 percent this year, that would crowed out private sector borrowing from banking sector.

"Inflation, once reduced to around 9 percent, is now again increasing, and rebounding at 13 percent, which is very harmful for the poor segment of the society. This is the biggest help for the poor class; this also helps increase investment, that ultimately helps reducing poverty," Masood said. He said help from donors, like Tokyo pledges, are slow, and IMF urges the donors to come up and support Pakistan, he added.

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 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...

KSE-100 closed at 1408 on Dec 31, 1999. Then, exactly 10 years later on Dec 31, 2009, it closed at 9386. In between, it hit a peak of 15125 on March 31, 2008 around the time of the elections.

Using a 10-year window with year-end closes in 1999 and 2009, it comes to about 21% CAGR. If you discount it for Pak currency decline from 55 to 85 rupees to a dollar (most of which occurred since 2008), then the CAGR return is still a whopping 16% a year....clearly beating all of the BRIC nations' stock performance in this period.

If any one insists on making KSE-100 look bad by using the March 31, 2000 peak (2000 points) at last week's close (on 10138 points), then 17.82% before currency discount, and 13% after it...still beating all of the BRICs.

Riaz Haq said...

Improvement in macro imbalances: KSE-100 records 8% return in 1Q 2010, says Daily Times:

By Tanveer Ahmed

KARACHI: Robust foreign investment and gradual improvement in macro imbalances propelled the Karachi stock market to record eight percent return in the first quarter of 2010.
Following dismal performance in the fourth quarter of 2009, Pakistan’s benchmark equity index posted 8 percent return (8 percent in dollar) during the first quarter (January to March 2010) despite the political and security issues, whose intensity increased in recent weeks especially the deadlock on 18th Amendment.
“This is the second highest quarterly gain during the last one year, thanks to robust foreign activity and gradual improvement in macro imbalances,” Topline Securities analyst Farhan Seth stated.
Because of strong performance of equities, overall market capitalisation reached $34 billion whereas average volume during the first quarter of the current year stood at $76 million.
In March alone the equity prices rallied 5 percent led by $100 million net buying by foreign investors, after $32 million net inflow in the first two months of this year that inched up the index by 3 percent.
The comparison of the first quarter returns of the last 10 years show that, the last quarter gains are lower than the average gains. Interestingly, during the last decade, market average in the first quarter in any current year’s return was 14 percent.
The lower return this time is mainly due to exceptional gains of 60 percent (51 percent in dollar terms) in 2009 coupled with severe liquidity crunch being faced by local investors. Only local mutual funds’ net selling was at $54 million until March 30 due to continuous redemption pressure.
The sector-wise performance of the capital market indicates that fertilizer companies performed impressively due to robust earnings in the last quarter of 2009 and handsome payouts. FFBL was the star performer with 30 percent return, outperforming the index by 22 percent followed by Engro with 21 percent return while FFC outperformed the index by 2 percent.
On the other hand, OMCs (PSO and APL) and refineries’ (ATRL and NRL) remained laggards due to growing circular debt and lower refinery margins. Subdued refinery margins and lower capacity utilisation haunted refinery earnings, whereas despite better earnings circular debt remained the major issue for OMCs’. ATRL posted negative returns of 16 percent while NRL posted nominal 2 percent return where as PSO and APL posted 4 percent and 5 percent, respectively.
OGDC, the largest state-owned company with capitalisation of $6.3 billion, posted 17 percent return mainly led by huge foreign buying. Out of $132 million net buying so far in the first quarter of 2010, 30-40 percent is parked in OGDC, the analyst noted.

Riaz Haq said...

Here's a WSJ story about the exit of Citibank, Credit Suisse and JP Morgan from Karachi, Pakistan:

Three Wall Street banks have abandoned their brokerage operations in Pakistan amid the nation's bleak economic situation.

Citigroup's Citibank shuttered its equity research office in Karachi, the nation's financial capital, in March. Credit Suisse Group closed its research operations in the same city earlier this year. That follows JPMorgan Chase's decision in late 2008 to suspend its brokerage operations, also in Karachi.

A spokeswoman for Credit Suisse said the bank had closed its research division but was covering Pakistan companies from Singapore. A spokeswoman for Citibank declined to comment. JPMorgan retains a seat on the exchange but is not active in the country, a spokesman said.

The closures are a further blow to Pakistan's financial community at a time when the country's own finances are struggling. The country was forced to call in the International Monetary Fund in November 2008 due to a balance of payments crisis sparked by a rising oil import bill. The IMF has earmarked $11.3 billion for Pakistan, which has pledged to slash its government deficit and get inflation under control.

Wall Street banks began to dip their toes in to Pakistan's equity market in late 2006 after the economy had grown by an average of 7% for a number of years, fueled by liberalization of the banking sector and a consumer spending boom.

In late 2006, Pakistan's state-owned Oil and Gas Development Co. Ltd. raised over $800 million through a listing in London of 10% of its shares – the largest initial public offering of a Pakistan company in over a decade. Foreign investors poured $2.3 billion in to the Karachi Stock Exchange in the fiscal year ended June 2007, more than six times higher than the previous year, according to central bank statistics.

But Pakistan's economy began to unravel in 2008 causing runaway inflation and a growing current account deficit. The country, which is reliant on expensive imported oil, started to face regular electricity shortages which further clouded the economic picture. The resignation of former President Pervez Musharraf in August 2008 further spooked investors.

Billions of dollars were wiped off stocks in 2008 as foreigners headed for the exits. The stock market regulator imposed trading curbs between August and December 2008 to attempt to halt the slide but the measures had little effect. In the year ended June 30, 2009, foreign investors pulled out $511 million from Pakistan's stock market.

Average daily trading values on the Karachi stock exchange are currently less than $120 million, down from $400 million in 2007, says Asif Ali, Karachi-based head of research at National Bank of Pakistan, a state-owned commercial bank.

But Mr. Ali points out that foreign investment flows have turned positive in recent months as the government under its IMF program has succeeded in getting the current account deficit under control. Some $200 million has flown in to Pakistan stocks since the start of 2010, a small positive sign, he said.

Riaz Haq said...

Here's a Bloomberg report about Pakistan's stocks being cheapest in Asia, and poised to rise by 23% by Dec this year:

" April 9 (Bloomberg) -- Pakistan’s stocks, the cheapest in Asia, may advance by 23 percent in the next eight months, buoyed by overseas funds and improved company earnings, according to National Investment Trust Ltd.

“All the fundamentals indicate that the market will pare most of its losses of the past two years” and reach 13,000 by end-December, Manzoor Ahmed, who manages the equivalent of $857 million as head of asset management at state-owned National Investment, Pakistan’s largest equity fund, said in an interview yesterday. “The economy is in a good recovery phase.”

Pakistan’s benchmark Karachi Stock Exchange 100 Index trades at 8.75 times future earnings, the lowest in Asia, according to Bloomberg data. A Taliban guerilla offensive has killed hundreds in a nation that’s been ruled by the army for half of its existence since 1947, when it gained independence.

The KSE100 rose 0.5 percent to 10,589.26 as of 12:13 p.m. in Karachi, from yesterday’s close of 10,533.57. Still, its 41 percent lower than its record in April 2008.

Oil companies, power generators and lenders may lead gains in Pakistan’s stocks this year, said Ahmed, without naming any.

The KSE100 index sank as much as 69 percent from its peak after the Karachi Stock Exchange restricted trading for four months from August 2008 to prop share prices up.

The gauge has climbed 13 percent this year, extending last year’s 60 percent advance as overseas investors bought more equities in South Asia’s second-largest economy. Gross domestic product may grow 3.4 percent in the financial year ending June 30, after a 2 percent gain in the previous year, according to the Finance Ministry.

Inflation, Politics

Stock gains may be limited if accelerating inflation prompts the central bank to raise borrowing costs, while a struggle between the nation’s top politicians, President Asif Ali Zardari and opposition leader Nawaz Sharif, a former prime minister, may limit the government’s ability to implement policies aimed at buoying the economy, Ahmed said.

Foreign investors bought net $176.6 million of Pakistan stocks between Jan. 1 and April 8, after selling a net $237.4 million in the same period last year, according to stock exchange’s National Clearing Company of Pakistan Ltd.

The KSE100 Index plunged 58 percent in 2008, its first annual decline since 2001. Pakistan needs to expand at an average 6 percent pace over the next five years to cut poverty, according to the government."

Riaz Haq said...

In spite of all the bad news that the media love to project, KSE has risen about 13% in dollar terms versus 6.8% increase in BSE so far in 2010.

Riaz Haq said...

Here's a London trader Manraj Singh talking about Pakistan's KSE stocks potential:

Taliban and credit crunch or not, I expect to uncover some absolute bargain investments in this country. Three Pakistani companies that I have had my eye on have shares that trade in London. I think that they are worth a closer look.

Two long-term plays on Pakistan’s turnaround

United Bank(ticker:UBLS) is one of Pakistan’s top commercial banks. It focuses on servicing the corporate sector and has more than 1100 branches across the country. It has the big advantage of being backed by the colossally rich royal family of Abu Dhabi, the Al-Nahayans. The bank’s chairman, Shaikh Nahayan Mabarak Al Nahayan, is also the United Arab Emirates Minister of Higher Education and Scientific Research. So there doesn’t seem much chance of United Bank running into funding problems even if credit conditions in Pakistan stay tight.

Then there is MCB or Muslim Commercial Bank(ticker: MCBS). This is one of Pakistan’s biggest banks. It focuses on retail customers and has an impressive network of over a thousand branches and some 4 million customers. That makes it a good proxy for the long-term growth of the country’s middle class.

MCB is a highly professional organisation and it has attracted a big international shareholder base. Its biggest shareholder is the Malayan Banking group, which owns a 20% stake. And the Templeton emerging markets funds headed by investment bigwig Mark Mobius are also major shareholders.

Neither of these banks is dirt cheap right now. MCB’s share price has more than doubled since February and United Bank is up by some 80% over that period. They now trade at about eight times earnings. Not expensive, but not cheap either. But they are big, liquid companies and they will be among the first to benefit when international investors start looking at Pakistan seriously again.

Major banks are a good proxy for the performance of emerging markets. So as longer-term investments over the next 3-5 years, these two could pay-off massively.

And one punt for the brave…

On a completely different note is Lucky Cement(ticker:LKCS). Thisis Pakistan’s biggest cement producer. It is also a major exporter to countries in the surrounding region. It ships cement to neighbouring Afghanistan and India as well as to Ceylon and the Middle East. The region is still seeing strong economic growth and that has helped this company.

Lucky Cement has delivered impressive financial results . Despite the credit crisis, political upheaval and Taliban uprisings, profits have more than doubled this year. Its share price has risen by 148% since the start of the year. But it still trades at a reasonable five times earnings. It’s an interesting company, but not without risk. Its major cement production plant is located in the volatile North West Frontier Province where the Pakistani Taliban is active. Appropriately, its shares in Karachi trade under the ticker symbol LUCK. Here in London, its GDRs trade under the less ominous ticker symbol LKCS.

There’s more work to be done and I have other candidates I’m looking at. But I believe Pakistan will be an outstanding investment opportunity in the next few years. The time to get in is when investors fear to go there. That’s now.

I’ll get back to you when I have decided the best way to profit from Pakistan’s undervalued markets.

Till then, good investing.

Manraaj Singh
For The Right Side

http://www.fleetstreetinvest.co.uk/emerging-markets/asian-markets/pakistan-investment-opportunities-51623.html

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...

Foreign investment in Pakistan declined 34% in 2 months, says a report in Daily Times:

KARACHI: Net foreign investment in the country fell 34.1 percent to $267 million in the first two months of the fiscal year 2010-11 (FY11) as compared with $405.4 million in the same period last year, the State Bank of Pakistan said on Friday. Out of the total foreign investment, foreign direct investment (FDI) fell 50.2 percent in July and August to $171.4 million from $344.5 million in the same period last year, the central bank said. A worsening security situation, with a Taliban insurgency in the country’s northwest, coupled with chronic power shortages has put off investors, analysts say. There was a net inflow of $95.6 million in the first two months of the FY11, as compared with a net inflow of $60.9 million in the same period last year. On monthly basis, FDI to the country witnessed a decline of 31 percent in the month of August 2010 to stand at $69.5 million as compared to $101.9 million in the previous month. According to the latest data, the foreign private investment recorded a decline of 18.49 percent as it dropped by $26.6 million to stand at $117.2 million as compared to $143.8 million last month. However, portfolio investment reached $47.7 million in the second month of the current fiscal year as compared to $41.8 million in the first month, showing an increase of 14.11 percent. An International Monetary Fund (IMF) emergency loan package agreed in November 2008 helped Pakistan avert a balance of payments crisis and shore up reserves. It received the fifth tranche of $1.13 billion of the IMF loan of $11 billion in May and Pakistan and IMF authorities are going to meet in November to discuss the release of the sixth tranche. The IMF on Wednesday approved as expected $451 million in emergency funding for Pakistan to help the country rebuild from devastating floods. This was separate from the $11 billion IMF program

Atif Yousuf said...

Sunrise Capital Private Limited is a privately owned independent company established recently in July 2009 to provide professional intelligence and financial advice from its head office in Karachi..
kse pk

Mayraj said...

He wasn't just a Muslim phobe, he was latino phobe as well.

This is the guy Fareed Zakaria admires????
http://cyber.law.harvard.edu/blogs/gems/culturalagency1/SamuelHuntingtonTheHispanicC.pdf
The Hispanic Challenge
By Samuel P. Huntington

Two articles by two reactionaries. I have not read Samuel Huntington, but his clash of civilizations is famous for its belief that he and others like him are superior to Muslims. I thought FZ was strange. Now I know who taught him.


http://www.foreignpolicy.com/articles/2011/01/05/remembering_samuel_huntington

Remembering Samuel Huntington
A man of towering intellect, who never shied away from going for the jugular.
http://www.foreignpolicy.com/articles/2011/01/05/samuel_huntingtons_legacy

Samuel Huntington's Legacy
Why his works on world order -- political and otherwise -- are still relevant today.

Mayraj said...

http://tribune.com.pk/story/277659/pakistan-emerges-as-second-best-performing-market-in-asia/
Pakistan emerges as second best performing market in Asia

Riaz Haq said...

Despite security concerns, tense relations with the US and economic slowdown, Pakistan’s stock market has managed to rank as the second best performing market in Asia after Indonesia in 2011 so far, according to a Topline Securities research note.

Corporate earnings and reduction in interest rates helped equities so far in 2011 amongst the Asian Emerging and Frontier markets tracked by MSCI, adds the note.

Resurgence of US crisis coupled with headwinds in eurozone saw huge selling in global equity markets as risk-averse offshore investors moved to safe heavens. The MSCI All Country World Index has slumped by 8% in 2011 till October 18 on concerns about the world economy and the lack of any credible solution to Europe’s debt issue, the reason also why most Asian Emerging and Frontier markets have posted negative returns so far in 2011.

Moreover, except the Indonesian market, all markets in MSCI Asian Emerging and Frontier markets are down 5% to 39% with India and China, the two leading markets falling by 26% and 24%, respectively.

Interestingly, Pakistan with a fall of 5% is so far the second best performing market amongst these 12 countries.

Due to fear of another recession, the benchmark MSCI Word Index is down 8%. Emerging and frontier market indices also followed by falling 18% and 25%, respectively

http://tribune.com.pk/story/277659/pakistan-emerges-as-second-best-performing-market-in-asia/

Riaz Haq said...

The Indian stock market today lost its trillion-dollar status, as a decline in the rupee and share valuations led to its size slipping below this mark to $994.97 billion, according to India's Economic Times:

India had managed to hold onto the select league of the countries with a trillion-dollar stock market by a whisker for past few days, but finally gave in today after the market barometer Sensex fell to a fresh 28-month low and the rupee lost further value against the US dollar.

At the end of today's trade, the total size of the Indian market, measured in terms of cumulative valuation of all listed stocks, stood at Rs 52,60,440.78 crore.

As the rupee ended the day at Rs 52.87 level, the stock market's size in the American currency was USD 994.97 billion -- just a shade below the trillion-dollar mark.

The Indian market had a size of USD 1.0116 trillion (Rs 53,48,352.02 crore) at the end of yesterday's trade.

A total of 13 countries are now estimated to be left in the trillion-dollar stock market club, including the US, the UK, Canada, Brazil, Australia, Hong Kong, South Korea, China, Japan, Spain, Germany, Switzerland and France.

The Indian market had first achieved a trillion-dollar size about four and half years ago on May 28, 2007, but moved out of this coveted league about a year later on July 1, 2008.

India again joined this elite club of markets with trillion-dollar valuation about a year later on June 3, 2009.

The Indian market was, in fact, seen inching towards the two-trillion dollar mark at least twice in the past -- first in early 2008 and then at the beginning of 2011 with a size as high as USD 1.9 trillion.

A sharp plunge in the market this year has led to the Indian market valuation falling by close to Rs 20 lakh crore (over USD 500 billion), from about Rs 73 lakh crore (USD 1.7 trillion) at the beginning of 2011.

The rupee has been a declining trend for many months now and had hit its record low level below Rs 54-level last week, but the fall was somewhat arrested since then on the back of an intervention by the Reserve Bank.

The market size has been hovering above the trillion- dollar mark for last few days and an eminent miss was averted on Thursday last week, when the RBI managed to reverse the downfall of rupee after a record fall to Rs 54.30 level.

On Friday, the market size stood at Rs 54,11,301 crore or USD 1.026 trillion, based on that day's currency rate of Rs 52.30, as the market tanked sharply. The trillion-dollar tag had been lost that day itself, if the rupee had managed to hold onto its record high levels.

In terms of individual exchanges, the total size of stocks listed on the NSE yesterday itself slipped below trillion-dollar mark to USD 989 billion (Rs 52,30,333 crore).

At the end of today's trade, NSE-listed market valuation stood at Rs 51,42,566 crore (USD 972.68 billion).

However, the market valuation of NSE-listed companies is not considered as the country's stock market size, as not all the companies are listed on this exchange.

Indian stocks are mainly listed on two national bourses, the BSE and the NSE, but the numbers of listed companies on the two stock exchanges differ sharply.

While about 1,600 stocks are actively traded on the NSE, the number is almost double at over 2,900 at the BSE.

Almost all the stocks listed on the NSE are also listed on the BSE and therefore the cumulative valuation of companies listed on the BSE is treated as the total market size.

http://economictimes.indiatimes.com/markets/analysis/india-moves-out-of-trillion-dollar-stock-market-club/articleshow/11181756.cms

Riaz Haq said...

A recent book "The Growth Map" features Goldman Sachs' Jim O'Neill's personal account of the BRIC phenomenon, how it has evolved, and where those four key nations currently stand after a turbulent decade.

And the book also offers an equally bold prediction about the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These developing nations may not seem exceptional today, but they offer exciting opportunities for investors over the next decade, just as BRIC did before them.

http://books.google.com/books?ei=k49mT87qIOqsiQKJ_PGiDw&id=C-yqJ8ftFBgC&dq=the+growth+map&q=Pakistan#v=snippet&q=Pakistan&f=false

Riaz Haq said...

eFinancal News reports that commodities spot market is planned for Lahore, Pakistan:

According to local media reports, the managing director for the Lahore Stock Exchange, Aftab Chaudhry, has announced that the exchange will look to set up a spot trading platform to enable farmers in Punjab to access better prices and allow banks to provide post-harvest financing to them.

Local regulator, the Securities and Exchange Commission of Pakistan, is already considering an application to establish a spot trading platform. Chaudhry said that if approval is not granted soon, the exchange would take matters into its own hands by establishing its own spot market using regulations governing co-operatives.

Chaudhry was reported to have described its own current spot commodity market as "opaque" with the pricing process dominated by middlemen.

A regulated spot market would allow farmers to access the best prices and also enable banks to lend more easily to them during the off-season once they have guarantees that the prices are an accurate reflection of the market.

Chaudhry said that the exchange is in advanced talks with many potential partners to establish the spot exchange by the end of 2012. The aim is to provide a trading system that combines both exchange technology and a mobile payment system using Singapore's Utiba system.

Utiba is currently used in more than 30 countries offering mobile payments and trading. Its mobile platform currently supports 500 million subscribers and processes over 12 billion transactions per year.

Agriculture is a key export for Pakistan, accounting for 21% of the GDP and 80% of the country’s total export earnings, with Punjab accounting for 29% of Pakistan's exports, according to figures compiled by the Punjab regional government. The main crops are cotton, wheat, rice, sugarcane and maize.

Pakistan already has a mercantile exchange, where futures are traded. Set up in 2007, the Pakistan Mercantile Exchange is licensed and regulated by the Securities and Exchange Commission and was the first technology driven, web-based commodity exchange in Pakistan. It has a 100% institutional shareholding.


http://www.efinancialnews.com/story/2012-03-20/commodity-spot-market-lahore-pakistan?mod=sectionheadlines-home-TT

Riaz Haq said...

Here are excepts of an interview of Elliot Theorist Mark Galasiewski who's bullish on Pakistan:

To answer your question, there are various ways to make long-term investment decisions. For example, Warren Buffett has shown that picking individual stocks can provide good returns over time. But it's a very labor-intensive and time-consuming process, to research companies thoroughly enough to have the kind of conviction that he does. And his “buy and hold” strategy means that he suffers significant drawdowns in his portfolio at times -- like during the 2007-2009 crash.

Elliott wave analysis gives you the opportunity to make long-term bets with a similar conviction -- but with a fraction of the elbow grease. Instead of pouring over hundreds of quarterly reports and legal documents, you look for Elliott wave patterns in the charts of market indexes. Those patterns reflect investors' collective bias, bullish or bearish. (I won't go into details of why this is so; our Club EWI has tons of free reports explaining the mechanics of the Elliott Wave Principle.)

So, knowing what part of the Elliott wave pattern your market is in, you know how the pattern should progress from there, ideally. And that gives you a probabilistic forecast for the trend. It doesn't work 100% of the time (what does), but our subscribers remember more than one successful forecast we've made using Elliott waves.

For example, on March 23, 2009 -- at the time when almost no one felt bullish -- we issued a special report to our subscribers forecasting a multi-year bull market in Indian stocks. Two weeks later, we identified three more markets in the region -- Pakistan, Sri Lanka, and Indonesia -- that we believed were also likely to enjoy an "Indian Ocean Renaissance."

India, Pakistan, Sri Lanka, Indonesia have all since generated some of the best returns among global stock markets. Without knowledge of the Elliott Wave Principle, it would have been difficult to forecast the boom -- especially given the dismal news events at the time. Do you remember the headlines in early 2009?

The world was engulfed by the global financial crisis, and most people believed the worst was still ahead. The currencies of India, Pakistan, Sri Lanka, and Indonesia had collapsed. Pakistan and India were on the brink of conflict over the Mumbai terrorist attacks of late 2008. A civil war was still raging in Sri Lanka. Who would turn bullish on stock under those "fundamental" conditions? We did, and only because Elliott wave patterns in the price charts of those four markets told us to "buy."

And by the way, the terrible conditions in India, Pakistan and Sri Lanka mostly reversed along with the market rally over the next year.
---------
The Wave Principle is how the market works. Financial markets are non-rational and counter-intuitive. Investing according to conventional assumptions eventually leads to financial ruin, since the market too often does the opposite of what most people expect.

Even thinking contrarily is insufficient, because sometimes it’s necessary to run with the herd. But Elliott wave analysis helps you to determine which psychological stance is most appropriate at any given time. Often, the news at the time would be suggesting you do the opposite.


http://www.elliottwave.com/freeupdates/archives/printer/2012/04/26/India,-Pakistan,-Sri-Lanka,-Indonesia-How-Elliott-Wave-Analysis-Turned-BULLISH-When-Few-Dared.-Part-.aspx

Riaz Haq said...

Here's a NY Times on soaring stock market in Karachi, Pakistan:

If the best time to buy, as the old business adage says, is when there is blood on the streets, then Pakistan’s commercial capital, Karachi, offers the ideal investment opportunity.

For more than a decade, the sprawling seaport megalopolis of about 20 million people has been racked by political, militant and criminal violence that has taken thousands of lives. Yet, over the same period, the city stock market, which is also Pakistan’s main exchange, has posted spectacular results.

Over the past 12 months alone, the Karachi Stock Exchange has surged more than 44 percent, placing it among the world’s top-performing stock markets in dollar terms this year, according to Bloomberg.

That follows a decade of growth in which one dollar invested in an index fund of Pakistani stocks 10 years ago would have earned, on average, 26 percent every year, analysts say, in a period otherwise notable mostly for bad news. As the stock market rose, the Pakistani military leader Gen. Pervez Musharraf fell, Osama bin Laden was captured and Taliban violence spread from the northwest to cities across the country, including Karachi.

Just as surprising, perhaps, Wall Street firms are driving the latest phase of the stock boom. Bad news can make for a good bargain, they say.

“What you see in the popular press is just one part of the picture,” said Mark Mobius, a fund manager at Franklin Templeton Investments, which has more than $1 billion invested in Pakistan stocks, mostly in the energy sector. “There’s another side to these countries, where life goes on. And that’s what we focus on.”

The gloomy image of Pakistan obscures positive aspects of its economy that, investors say, make some companies an attractive bet. Beyond the headline news, much of the country is getting on with normal life. And with a population estimated at nearly 200 million people — a high proportion of them young — Pakistan offers a large, lucrative market for consumer goods, construction and financial services firms, which constitute the bulk of the Karachi stock market.

The biggest publicly listed companies — like the multinational NestlĂ©, the Oil and Gas Development Company and Fauji Fertilizer, a military-run conglomerate — pay handsome dividends, which makes them attractive to foreign investors.

And the recent election victory of Prime Minister Nawaz Sharif, a business tycoon, has injected confidence into the financial community, which had been wary of the previous government.

For a time, Pakistani stocks were undervalued by as much as 50 percent to account for risk, compared with a regional discount of about 20 percent, said Taha Javed, a financial analyst in Karachi. Now, as foreign investors pile in, he said, “we are catching up.”...


http://www.nytimes.com/2013/10/04/world/asia/amid-bloodshed-in-pakistan-a-stock-exchange-soars.html