Merrill Lynch Fund To Invest In Pakistan

As individual and institutional investors scour the globe looking for higher returns on their investments, they are discovering markets in emerging economies outside the well known BRIC (Brazil, Russia, India and China) countries. Karachi Stock Exchange in Pakistan represents such a discovery. Four Pakistani companies are now in a new index fund called the Frontier Index fund launched by Merrill Lynch today. To be included in the index, companies must have a market capitalization of at least U.S. $500 million, a three-month average daily turnover of at least U.S. $750,000 and a foreign ownership limit above 15 percent. The composition of the index will be reviewed twice a year, in February and August.

Stocks listed in the Middle East make up 50.0 percent of the new index, followed by a 22.6 percent share for Asia, 14.1 percent for Europe and 13.3 percent for Africa. The top three countries represented in the index are the UAE (23.1 percent), Kuwait (18.1 percent) and Pakistan (13.6 percent). Banks dominate the index (39.4 percent), followed by financial services companies (25.7 percent) and oil and gas firms (13.6 percent).The largest country weight outside the Middle East is Pakistan, with four companies included. Despite the political turbulence in Pakistan this year, the benchmark KSE 100 index is up 5%, while neighboring India's key index is down almost 20%.

It should be noted that the KSE-100 has been one of the hottest stock markets in the world for several years in a row. It rose 44% last year in spite of the political uncertainty and ongoing violence in the country. Pakistan's economy has seen strong growth of 7-8% per year for several years now. Pakistan is among the "Next-11" counties designated by Goldman Sachs as attractive investment markets and it has been called "safe haven" for foreign investors by Merrill Lynch Asia Chief Strategist Mark Matthews.

Merrill Chief Strategist Says Pakistan A Safe Haven For Investors

"Pakistan is a safe haven for investors", says Mark Matthews, chief Asia strategist at Merrill Lynch, speaking to CNBC's Arnold Gay in January, 2008. This is in sharp contrast to some of the rating agencies like S&P and Moody's hinting at possible downgrade of Pakistan as an investment opportunity. Matthews argues that Pakistan is one of the best information arbitrage markets in the world.
While the bombings, shootings and the body bags make good headlines for the news media, Matthews says it is incorrect to say that Pakistan is being radicalized. There is always a radical fringe in Pakistan like many other countries. Matthews is "very bullish on Pakistan". He points out that Karachi Stock Exchange KSE-100 index rose 45% and Pakistan's GDP grew by 7% in 2007 in spite of continuing political instability and a continuous stream of news of violence and mayhem on the streets. Pakistan has some of the best companies in the world with stock valuation about a half of similar companies in India.
Here's a link to the CNBC video of Matthews' interview.