Global funds turn to Pakistan as 84% stock rally set to extend

Some of the world’s top money managers are once again favoring Pakistan’s stocks after the market returns last year were among the best globally, reports Bloomberg.

From BlackRock Inc to Eaton Vance Corp, asset managers are warming up to the South Asian nation’s $50 billion market that handed investors 84 per cent returns in 2024. Attractive valuations and a stabilising economy have improved the outlook for local shares, with Intermarket Securities Ltd. predicting a gain of about 40 per cent for the main KSE-100 index this year.

“You don’t have to stretch your imagination to make an investment case for Pakistan,” said Steven Quattry, New York-based portfolio manager at Morgan Stanley Investment Management Inc. The rally has been supported by strong earnings growth, he said.

Pakistan’s stocks surged last year, helped by improving economic outlook and crucial loan deals with the International Monetary Fund. More recently, the nation’s current account balance has improved, and easing inflation spurred the central bank to cut rates.

The optimism is reflected in foreign fund allocations. The nation’s stocks had a 5.0 per cent weight in BlackRock Frontiers Investment Trust as of December, marking a return for the money manager for the first time since March 2022. Eaton Vance also reentered the market in the June quarter following a brief exit.

Legal & General Investment Management Ltd and Evli Fund Management Co have also raised holdings, according to data compiled by Bloomberg. The level of foreign investor interest at present is comparable to the peak years of 2014-2018, according to Mohammed Sohail, chief executive officer of Topline Securities Ltd.

Political Instability

Still, risks remain. The political environment is fragile, with former Prime Minister Imran Khan wielding power to mobilise nationwide protests from behind bars -- unrest that threatens to derail economic activity.

Economic challenges also persist. The nation fell 6.0 per cent short of its six-month tax collection target -- a key condition for its $7 billion IMF loan -- raising concerns about its ability to win the next tranche of the funding.

A downgrade in the nation’s status to frontier market status by FTSE Russell that took effect in September hurt sentiment, prompting foreigners to turn net sellers in the last three months of 2024.

Despite these headwinds, investors are bullish given the improving external finances. Foreign exchange reserves now cover more than two months of imports, inching closer to the IMF-prescribed levels. That’s an improvement from less than a month’s coverage before the IMF bailout in 2023.

“If Pakistan can manage its current account deficit, which they should be able to, we can see a multi-year rally in the market,” said Ruchir Desai, a fund manager at Asia Frontier Capital Ltd in Hong Kong.