Pakistan Asia’s best market, beats India

KSE100 index goes up by 2,625pc, Mumbai stocks 431pc, China’s Shanghai Composite index 120pc since start of new century; Nawaz govt to complete term

NEW DELHI: An article in a Gulf newspaper terms Pakistan Asia’s best market while an Indian newspaper report says Pakistan’s stock market has outperformed the Indian equity market with a huge gap since the beginning of the new century. 

According to Economic Times, over the past 16 years, the MSCI (Morgan Stanley Capital International) Pakistan index climbed over 14 per cent in dollar terms on a compounded annual growth (CAGR) basis, while the MSCI India index has advanced 8.39 per cent annually during the same period, data available with Bloomberg showed. 

The KSE100 index of the Karachi Stock Exchange rallied 2,625 per cent from 1,772 in January 2000 to around 48,300 in December 2016, while the Sensex of the BSE (Mumbai) advanced 431 per cent in this period. 

KSE100 tracks the performance of biggest companies by market capitalisation from each sector of the Pakistani economy listed on bourses.  On the other hand, the 30-share Sensex jumped from 5,005 in December 1999 to 26,626 on December 30, 2016. 

The macroeconomic conditions of India look strong in terms of gross domestic product (GDP). According to an earlier Economic Times report quoting the Central Intelligence Agency, India's real GDP growth rate was at 7.3 per cent in 2015, ranked 12th globally, compared with Pakistan's 4.2 per cent, ranked 60th. 

Among other emerging markets, the Chinese equity indices have underperformed both Indian and Pakistani equity markets since the year 2000. China's Shanghai Composite index advanced 120 per cent to 3,103 till December 2016 from 1,406, where it was trading at in January 2000. 

According to a Forbes report, published in September 2016, Pakistan is a frontier economy rather than an emerging market, and is, therefore, ahead in the numbers game.

This means Pakistan's economy is less exposed to the global uncertainties compared with that in China and India. Therefore, it is less affected by interest rate fluctuations in developed countries, primarily the US. 

Meanwhile, according to a report from Dubai, “In 2015 and early 2016, I had written at least half a dozen columns strongly recommending UAE investors understand the macro ballast behind the spectacular bull market on the Karachi stock exchange,” says writer of an article in a Gulf newspaper, Khaleej Times. 

Pakistani equities were up 45 per cent in 2016, the best performing emerging market in Asia. Pakistan is still not expensive at 10.4 times forward earnings, still a major valuation discount to Indonesia at 15X, India at 16X and the Philippines at 18X earnings. 

Ironically, foreign investors unnerved by the escalating conflict with India on the Line of Control (LoC) in Kashmir, Nawaz Sharif's political woes and a sporadic privatisation programme have actually sold $250 million in Pakistani equities. 

Unlike Seoul, Tokyo, Mumbai or Jakarta, Pakistani equities do not soar only when they are in favour with global investors.

The MSCI upgraded Pakistan to emerging markets from its former frontier netherworld last June. The elected government of Nawaz Sharif will complete its full term, only the second such government in Pakistani history to do so.

Former army chief General Raheel Sharif won his war against the Taliban in Swat and South Waziristan - and resisted the calls of phony "democrats" who called on the GHQ to stage a coup d'état.

The State Bank of Pakistan's hard currency reserves have topped $20 billion. Budget deficits, inflation and policy interest rates has plunged to record lows. The $6.7 billion IMF structural adjustment programme is on track, China has promised to invest $46 billion in its "economic corridor". Pakistan has raised more than $3 billion in eurobonds/sukuk in the international capital markets.

Pakistan equities have returned 28 per cent per annum for US dollar investors since 2011. This makes former president Asif Zardari the father of the most spectacular bull market in Asia despite his PPP's ostensibly socialist, populist agenda.

Pakistan is also weekly correlated to Wall Street or even the major emerging markets indices. The writer remembers when a former American ambassador once told him that Pakistan was a "geopolitical too big to fail" state - to Washington, Beijing, Riyadh and even to New Delhi.

As late as December 2015, it was obvious to the writer that the world was grossly underweight Pakistan on the eve of a MSCI upgrade from frontier to emerging market that came in June 2016. Since the free float in Karachi is a mere 22 per cent, I did not need to be Warren Buffett to figure out that at least a 40-80 per cent move in Pakistani equities was imminent in 2016. After all, UAE shares more than doubled in value before and after their MSCI upgrade. This macro trade was, frankly, impossible to miss.

The writer believes it was a strategic mistake for Pakistan to sell 40 per cent of its combined stock exchange to Chinese and not Western investors. He writes Pakistan's destiny is with the Western democracies, not as a satellite state of the Dragon Empire.

The writer also believes the Kashmir time bomb will not explode into war on the LOC, even if it poisons relations between Islamabad and New Delhi. The easy money in Pakistani equities was made in 2016 though there is no shortage of 30-50 per cent upside strategic plays in Karachi in 2017. Pakistan amply vindicates George Soros's observation. The big money is made when things go from Godawful to just plain awful.