In a blog post titled "Building Corridors to the Future in Pakistan", an obvious reference to China-Pakistan Economic Corridor (CPEC), Mobius says he and his team "have been investing in Pakistan for a number of years, and see it as an overlooked investment destination with attractive valuations due to negative macro sentiment". It should be noted that Karachi Stock Exchange listed companies' average price-earnings multiple of just 10 is less than half of regional markets such as Mumbai with PE ratio of over 20.
In addition to new foreign investment in CPEC and low PE ratios, Mobius offers the following key reasons for his bullish outlook for Pakistan:
1. The Pakistani stock market has been one of the top-performing markets in the last five years (ended June 2015).
|Source: Economist Magazine|
3. Even after KSE-100 strong performance, valuations of Pakistani stocks still remain relatively attractive. As of end-June 2015, the trailing price-to-earnings ratio of the MSCI Pakistan Index was 10 times, versus 11 times for the MSCI Frontier Index and 14 times for the MSCI Emerging Markets Index.
4. Pakistan government efforts on expenditure control and divestments have been positive, but the government will need to remain committed to the economic and structural reform program.
5. An internal anti-terrorism drive was made in the wake of the tragic Peshawar incident in December 2014, which targeted schoolchildren. Mobius thinks these efforts need to be maintained over the longer term to develop a better security climate for businesses and the society as a whole.
6. In the political environment, delays in the implementation of reforms or deterioration in the political or security situation could adversely impact the country’s macroeconomic development and fiscal position, hinder investment and weaken investor confidence.
Bottom line for Mobius: Despite a number of ongoing challenges, there are "many reasons for a brighter future for Pakistan".
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