Pakistan had a great week, and the next week could be even better.
As our readers are well aware, financial return and political stability are not dependent on one another. No country demonstrates that better than Pakistan. We have covered Pakistan on several occasions, such as how to invest in Pakistan and Pakistan – The Booming?
This last week was a great week for Pakistan and we thought it was a good time to revisit the country and market. The first piece of news, is a genuine game-changer for the country; Premier Xi Jing Ping is expected to announce a $46bn infrastructure program for Pakistan next week. This is the first announcement from China for an infrastructure program of this scale outside its borders. It is unsurprising that Pakistan is their first choice. Pakistan, since its inception is China’s closest ally for a whole host of reasons, and strategically, Pakistan holds tremendous promise for China. The Chinese port at Gwadar in Pakistan allows China to skip the Straits of the Malacca for energy imports and builds trade in Western China.
This infrastructure program would have a massive impact on growth in Pakistan. Particularly in some of Pakistan’s poorest areas, such as Balochistan and Khyber Pakhtoonkhwa. Infrastructure in Pakistan is severely lacking, particularly in the areas of energy and rail, both of which are expected to be addressed with this infrastructure plan. The expected announcement is really the best news we could hope for in Pakistan.
Pakistan also successfully sold its remaining 41.5% stake in Habib Bank, Pakistan’s largest private bank. The government was able to raise $1bn and the offering was about 60% oversubscribed. Of the $1bn raised, almost 80% came from foreign investment. Pakistan is currently in the midst of a large privatization program which includes selling its stakes in the national airline (PIA), Pakistan Steel Mills, National Power Construction Company, and IESCO and FESCO (power distribution). Having this much success with Habib Bank bodes well for the balance of the privatization program and it gives foreigners an opportunity to invest in large companies.
At the end of March, the KSE 100 has started weekly, -6.9% in USD terms, compared to a 33% return in 2014 and a 38% return in 2013. Its rather reassuring that the market has shown some rationality and we have no concerns from a long-term perspective. The quality of companies available in Pakistan is quite attractive.
The currency has been stable at JPY-like levels and annualized inflation in March hit the lowest level since 1999. For these reasons we remain very optimistic on the economy’s prospects. See the table below for a refresher on the companies listed in Pakistan with a market cap above $50mm USD.
1. Gwadar Port
If you have any questions, as always, let us know.