Published On: Wed, Jan 8th, 2014

Investors Flocking to Business Friendly Pakistan

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Business Articles (Pakistan News) Pakistan

Business Articles (Pakistan News)

According to a report published by the renowned Wall Street Journal, Investors have showed great interest in exploiting the potential embedded within Pakistan after the recent election of the business-friendly government. This published statement was backed by the escalation of the KSE-100 Index by 49.4% last year.

The report observed that the biggest catalyst in Pakistan was the fact that for the first time in the history of the country an elected government successfully managed to transfer powers to the new government through general elections, thus raising expectations of improved political stability.

Flows from foreign investors into Pakistan reached $283 million from the beginning of May, the month of the election, to the end of 2013, according to the National Clearing Company of Pakistan. Global investors have also snapped up Pakistani government bonds with yields, which move inversely to prices, falling to 7.54% recently from as high as 11.69% in April on the 10-year bond.

The clearance of almost $5 billion in circular debt, a long-term bailout loan of at least $6.6billion from the International Monetary Fund, and a far reaching privatisation programme which will include the national airline and electricity producers, are all factors the report cites.

All the moves were important given that the country is plagued by electricity shortages, while the oil and gas sector accounts for nearly a third of the benchmark index in Karachi. The largest company on the index, energy firm Oil and Gas Development Company (OGDCL) saw share prices grow 43.5% last year.

Mattias Martinsson, chief investment officer and partner at fund company Tundra Fonderin Stockholm, which runs a $30-million Pakistan fund expressed delight over the recent measures taken by the new government, which succeeded in creating a more optimistic vision about the future of Pakistan.

For all the gains, however, the size is small with the market capitalisation of the companies listed in Karachi at around $52 billion, according to securities firm Foundation Securities Research. The number pales in comparison to neighbouring India where the companies on the Bombay Stock Exchange are valued at around $1.1 trillion.

The market remains cheap even after the strong run-up earlier this year, currently trading at over nine times trailing 12-month earnings – a common valuation measure used by stock analysts.

Pakistan’s economy is fairly diverse with a young population, which if fed with basic infrastructure and resources such as electricity and gas has the potential to grow enormously. “When you have to deal in this kind of environment, I think you have to be extremely good at management to survive,” said Thomas Vester, fund manager at Lloyd George Management, who runs the firm’s frontier market investments, and manages assets worth $656 million as of October 31, 2013.

 

 

 

 

 

 

 

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