Pakistan's strong economic fundamentals continue to entice investors

 

By Ellen Kelleher

 

India has long been regarded as a promised land for managers of emerging markets funds. And these days, many are increasing their stakes in companies in Bangalore and Mumbai to take advantage of the recent correction in the Indian stock market - which has lost more than a quarter of its value since the start of the year.

 

But neighbouring Pakistan is also attracting attention as investors are keen to bet on a cheaper satellite market that has yet to be tapped by mainstream investors.

 

This month's launch of the Pakistan Opportunities fund by Dalton Strategic Partnership and KASB funds, a local Merrill Lynch affiliate, underscores the budding interest in buying into the Karachi stock market, in spite of recent troubles in the local economy. The fund, which will debut on June 19, is the first Luxembourg-listed UCITs fund to invest exclusively in Pakistani equities.

 

"In looking at the Pakistan market today, we see many similarities with the Indian economy and stock market five years ago, before it enjoyed its strong rally," says David Graham, a partner with Dalton. "The Pakistan market has been described as buying India at half price."

 

Results in the long-term from both Pakistan and India remain enticing. In the past six years, the Bombay Stock Exchange is up 464.8 per cent and Karachi's has risen even more, reporting a jump of 597 per cent.

 

"As a long-term investor, these are the times when I want to invest - when other people are hesitant," says Arun Mehra, manager of Fidelity's India Focus fund. "As international markets begin to settle and signal the end of the down market, India should stabilise."

 

Managers are keen to invest in India's banking, auto, consumer and mid-cap sectors as well as Pakistani energy, banking, fertiliser and cement companies.

 

The management team at KASB funds in Karachi backs National Bank of Pakistan, trading on 7.4 times next year's earnings; Oil and Gas Development on 10 times future earnings; Pakistan Petroleum on 9.7 times next year's earnings; and Fauji Fertiliser Bin Qas, a fertiliser group trading on 9.3 times forward earnings.

 

"In Pakistan, there are over 600 listed companies you can play," reports Naz Kahn, chief executive of KASB funds. "Just six or seven years ago, this was a market that was untouched by overseas investors. But you have a number of favourable trends which are steadying the country's economy and enticing investors. The oil exploration story is one. The millions of Pakistanis living in the Middle East and sending money home is another. The low level of consumer debt is a third."

 

Pakistani stocks are cheaper, on most valuation measures, than those in India. And in spite of instability, the country's fundamentals remain fairly strong. Oil and gas stocks look attractive and Pakistani banks have not been affected directly by the credit crisis. Another benefit is that Pakistan - already the world's ninth-largest producer of wheat and fifth-biggest for sugar cane - is looking to increase its agricultural exports.

 

 

Courtesy: Financial Times

June 7, 2008