|Christopher Wood of CLSA in New Delhi, India
After recently visiting Pakistan for the first time,Wood wrote that Pakistan faces some short-term issues but its "economy can recover quickly from its latest crisis once the current hole in the balance of payments is plugged, as is likely to be the case by a combination of China and IMF funding, combined with some extra support provided by Saudi Arabia".
|Exports as Percentage of GDP. Source: CLSA
|Pakistan's Private Debt. Source: CLSA
Low Private Debt:
Wood wrote: "Consumer loans and SME loans accounted for only 12% of total bank loans (PKR498 billion and PKR422 billion respectively) at the end of 2Q18, while the loan-to-deposit ratio of the banking system is only 53%, down from 75% in 2008 (see following chart). Meanwhile, 69% of bank loans are to the corporate sector. But it is not leveraged, with corporate debt totaling only 16% of GDP."
Stock Market Valuations:
Wood finds Pakistan stock market particularly attractive because of its significantly low valuation relative to its Asian peers. Wood wrote: "The attractive point is low valuations and high dividend yields. The market is on 6.9x forecast calendar 2019 earnings based on a universe of 47 stocks and a 2019 forecast dividend yield of 8.2%."
|CLSA Recommended Weightings
Top investment strategist Christopher Wood of CLSA sees strong recovery of Pakistan economy once the short-term balance of payments crisis is overcome. Wood attributes it to "minimal (private sector) debt". He says "it was interesting to learn of the resilience of the country’s private sector with debt concentrated very much at the government level". "Pakistan is well positioned to benefit from the US-China trade war", he added. A similar conclusion has recently been reached by Tokyo-based Nomura Securities. Pakistan exports are currently just 8.2% of GDP, among the lowest in Asia.
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