Pakistan calls out for investors
Pakistan’s reputation as a risky place to do business is holding back foreign investment in the country, say asset managers.
Foreign investors have largely stayed away even as the country’s benchmark index grew more than five-fold since the financial crisis of 2008. Those gains were driven almost exclusively by money from local investors but increasingly now by foreigners, fund managers say.
“Perception from the media about what Pakistan is about and what Pakistan does is one of the reasons why foreign investors have stayed away,” said Maheen Rahman, the chief executive of Alfalah Investments.
“You fix this perception by bringing people in and getting more people to visit and see what’s actually going on. The problem is perception, confidence.”
That confidence, however, has been growing over the past year. Measures taken by the government to improve protection for foreign investors and keeping the peace in the volatile country are starting to pull in international buyers ahead of the country’s upgrade in May to an emerging market by the index provider MSCI, said Nasim Beg, the chief executive of Arif Habib Group.
Up to US$500 million in funds may come from international investors once the upgrade from frontier markets takes effect and about 40 per cent of that will be from passive investors who have to track the MSCI Emerging Markets benchmark, he said.
Pakistan’s economy has undergone a massive transformation in recent years that has improved its perception at the index maker in part because of a deal struck with the IMF.
The country, which has been roiled by political instability and violence for decades, got a shot in the arm after the IMF provided a $6.6 billion bailout loan in 2013.
That led to a string of state asset sales that have bolstered Pakistan’s foreign exchange reserves and lowered inflation.
The country, a net energy importer, is also gaining economically from the collapse in oil prices and China’s $46bn investment plan to build transport infrastructure connecting the two countries.
“This year we’ve seen positive improvement to the economy and low oil and low commodity prices have been helpful,” Mr Beg said.
“For a major energy importer, it has a major impact. The China programme, the first leg of the plan, is helping, as is keeping the budget under control, and that has helped keep inflation under control.”
All that has helped to boost stock prices, pushing the index to record highs last month. Still, even after that gain the participants at the conference pointed out that valuations for Pakistani equities remained attractive.
The MSCI Pakistan stock index, which gained 33 per cent last year, trades at a 11.94 times earnings, a key gauge of stock value, and has a dividend yield of 5.1 per cent, both measures being more attractive than the broader MSCI Frontier market index of which the country is a part of.
That measure trades at 13.73 times earnings and boasts a dividend yield of 4.08 per cent.
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Updated: February 27, 2017 04:00 AM