Pakistani Stocks Beat BRIC Shares in 1999-2009

Karachi shares market significantly outperformed Mumbai in the last ten years. But this fact is not enough to get any positive attention from Fareed Zakaria, India's best-known cheerleader in the West.

As expected, Fareed Zakaria's discussion of "The Rise of the Rest" sings praises of the BRIC nations, particularly mentioning his native India in the most glowing terms. There is nothing wrong with that, except that Zakaria omits any positive mention of India's neighbor Pakistan in the context of economic performance in the decade of 1999-2009, and chooses to strike familiar themes of "Islamic jihadists" and "terrorism" when he does make any references to Pakistan.



What Zakaria has omitted is the story of the extraordinary returns Pakistan has produced for investors. Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to about 80 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81. If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $900 today, while $100 invested in the Mumbai's Sensex stocks would be worth $274. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms, in a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world.

Unlike Zakaria and his fellow media Indophiles in the West, however, the smart investors are paying attention to the outsized returns produced by the Karachi Stock Exchange listed companies. Not only has Goldman Sachs reaffirmed Pakistan's place on the list of its top 15 emerging economies for 2010, smart international investment gurus are investing in Pakistan. For example, Mark Mobius of Franklin Templeton International Funds recently said he is "overweight compared with everyone else" in Pakistani stocks.

In late 2008, Pakistan asked for IMF's help in recovering from a severe economic crisis resulting from political turmoil and a balance of payment crisis. The Letter of Intent that Pakistan's PPP-led government signed with the IMF for the $7.6 billion bailout acknowledged that Pakistan's GDP jumped "from $60 billion in 2000-01 to $170 billion in 2007-08 with per capita income rising from under $500 to over $1000". The LOI with IMF also acknowledged that "Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01. The government's debt fell from 68% of GDP in 2003-04 to less than 55% in 2006-07, and its foreign-exchange reserves reached $16.4 billion as recently as in October (2008)."

Pakistan's KSE-100 shares trade well below the price-earnings of Mumbai or Shanghai, and its KSE's market cap is only a fraction Pakistan's GDP, which is a healthy sign for future increase in valuation. By contrast, the Indian stock market capitalization already exceeds India's total GDP. That's the sign of a bubble that can not be sustained for long.

Lower current valuation relative to BRIC markets means that there is greater potential for growth and higher returns on investments in Pakistan in the future. That's what many smart professional investment firms such as Franklin-Templeton and Goldman Sachs are expecting by being bullish on Pakistan.

Pakistan has defied low expectations repeatedly in the past. Let me quote what Mark Bendeich of Reuters wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune. Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."


Pakistan is just too big to fail. In spite of all of the serious problems it faces today, I remain optimistic that country will not only survive but thrive in the coming decades. With a fairly large educated urban middle class, vibrant media, active civil society, assertive judiciary, many philanthropic organizations, and a spirit of entrepreneurship, the nation has the necessary ingredients to overcome its current difficulties to build a strong economy and a democratic government accountable to its people.

Related Links:

Is Pakistan Too Big to Fail?

India and Pakistan Contrasted 2010

Goldman, Franklin-Templeton Bullish on Pakistan

The Rise of the Rest by Fareed Zakaria

Why Colombia's Stock Market Beat China's?

Goldman Sachs "Next 11"

Emerging Markets Expert Investing in Pakistan

Who Are the Next 11?

GS Next 11 and Pakistan in 2050

Karachi Stock Exchange

Pakistan FDI Survey Report 2009

Emerging Markets: Brazil, China---and Pakistan?

Templeton's Asian Growth Fund

Pakistan Economic Survey 2008-2009

Pakistan's Infrastructure

Karachi Fashion Week

Is Pakistan Too Big to Fail?

How To Invest in Pakistan?

Karachi Fashion Week Goes Bolder

More Pictures From Karachi Fashion Week 2009

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antarctica

Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom

Pakistan Telecom Sector Investment Prospects

ITU Internet Data

Eleven Days in Karachi

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Infrastructure and Real Estate Development in Pakistan

Pakistan's International Rankings

Foreign Direct Investments in Pakistan 1999-2009

Pakistan's Financial Services Sector

Assessing Pakistan Army Capabilities

Pakistan's Auto Industry

Pakistan is not Falling

Jinnah's Pakistan Booms Amidst Doom and Gloom

Pakistan's Higher Education Reform

The Next 11 Emerging Economies--Euromonitor

Karachi Stock Exchange Presentation

Is KSE Poised For Major Crash?

Dalal Street Call: Keep the Faith

Comments

SPAM said…
how do other OIC nations piece into this?

http://www.alhambrauschamber.org/blog/what-oic-giving-voice-57-nations-and-15-billion-people
Riaz Haq said…
Seeking Alpha webite is reporting that a Pakistan ETF is in the works.

Global X, the developer of several sector-specific China funds, has filed for several new country-specific funds, continuing its push to develop a line of innovative international funds. Among the most interesting of the batch are funds targeting Norway, Pakistan and the United Arab Emirates. While most details are still not available for these proposed funds, a look at the outline provided in the prospectus of the economies on which they will reportedly focus provides some insights into the risk and return profiles (it should be noted that not all funds for which a prospectus is filed are eventually launched, so it’s entirely possible these ETFs never make it to market).
Riaz Haq said…
Here's an interesting except from analysis of Pakistan, calling it the Next BRIC, by theglobalguru.com:

...much like Russia, Pakistan also has been one of the top-performing stock markets over the past decade. Had you been able to invest in the Karachi Stock Exchange at the turn of the millennium, you'd be sitting on a much bigger pile of profits than, say, if you had invested in the “China miracle.” Pakistan offers yet another lesson in how gleaming skyscrapers offer little guidance in predicting future stock market performance.

Investing in Pakistan: Surprisingly Big

Teeming with 169 million souls, Pakistan is the world's sixth-largest country by population. That makes it smaller than Brazil , but larger that Russia, as well as the “Next BRIC” candidates, Turkey, Mexico, South Korea and Egypt. Bordered by Afghanistan and Iran in the West, India in the East and China in the far Northeast, Pakistan is just about the size of France and the United Kingdom combined.

Pakistan's real per capita GDP of about $1,250 makes your average Pakistani slightly poorer than his counterpart in India -- and far behind the average in booming China. One third of Pakistan's population lives in poverty, and only half of the population is literate. Yet, Standard Chartered bank estimates that Pakistan has a middle class of 30 million that now earns an average of about $10,000 per year. And adjusted for purchasing power parity (PPP), Pakistan's per capita GDP approaches $3,000 per head. But take away that bit of economic affirmative action, and Pakistan's economy drops from the size of New Jersey's down to that of Alabama.

Investing in Pakistan: Edgy Relations with Uncle Sam

In the bad old days of the Soviet Union, Pakistan was a major U.S. ally. That relationship soured after the United States imposed sanctions on Pakistan after it refused to abandon its nuclear program. The “War on Terror” changed all that. After Pakistan ended its support of the Taliban regime in Kabul, American economic and military aid to Pakistan soared to more than $4 billion within three years of the 9/11 attacks. Indeed, American aid has played no small part in helping Pakistan's economy flourish over the past decade or so.

But as with most forms of handouts, gratitude is the least heartfelt of emotions. Anti-Americanism in Pakistan’s free media is just about as virulent as neighboring Iran. The Wall Street Journal’s Pakistan correspondent was ejected from the country after being charged with spying for the United States and Israel. The U.S. State Department advises U.S. citizens not to visit the country and has forbidden the families of its diplomats in Pakistan to visit since 2002.

Investing in Pakistan: A Solid Start to the Millennium

Economically, the first decade of the 21st century has been good to Pakistan. Thanks to economic reforms introduced in 2000 by the former Musharraf government, Pakistan has privatized $5-billion worth of assets, simplified its tax system and attracted large amounts of foreign direct investment (FDI) compared to its GDP. By mid-2005, the Pakistani economy was growing by 8.6%, and the World Bank named Pakistan as the top reformer in its region and among the top 10 reformers globally.

That changed abruptly with the onset of the “Great Recession.” Pakistan's ensuing balance-of-payments crisis and runaway inflation forced the IMF to step in, and offer a $7.6-billion emergency financing package in late 2008. To its credit, the Pakistani government kept its side of the bargain, maintaining its foreign exchange reserves above target and its fiscal deficit below. The Pakistani economic crisis has eased substantially, and in 2010, the economy is expected to grow at least 4%.

... The stock market index in Karachi has risen by more than 1,000% since 1999. And in 2002, Pakistan was the top-performing stock market in the world.
Riaz Haq said…
Goldman Sachs' Jim O'Neill has reaffirmed his optimism about N-11 group of countries which includes Pakistan. Here's an excerpt from a Vancouver Sun story:

In his book, The Growth Map, O’Neill attempts to look beyond the original concept and expand on it. Hence his “Next 11”: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam. However, O’Neill is quick to point out that not all of these countries are equally primed for investment.

This is a group of “very, very diverse countries,” he says. “On one level, I’m always quite embarrassed about the acronym N-11 because all it is ... is a phrase to describe the next 11 population countries after the BRICs, and that’s it.”

Indeed. The N-11 ranges from stalwarts of emerging-market investing, such as South Korea, Turkey, and Mexico, to countries that even the boldest investors tend to be wary of, such as Pakistan and Iran.

O’Neill posits that countries with huge populations and low gross domestic products per capita will be able to catch up to the developed world more quickly than they could have 50 or 100 years ago, as the economic centre of gravity shifts away from the West.

In order to assess countries’ capacity to generate sustainable growth, O’Neill has come up with a set of 13 variables (from education to rule of law to fiscal health to internet penetration) that combine to make what he calls a “growth environment score.” On this measure, the highest-scoring country, South Korea, tops every G8 country except one – Canada.


Read more: http://www.vancouversun.com/business/emerging-markets/Looking+beyond+BRICs+Neill+next/6252450/story.html

Another excerpt from UAE's The National:

Mr O'Neill, as one of the world's top economists and global chairman of Goldman Sachs' asset management business, has detailed answers for all the critics, although he does concede: "Maybe I'm too proud of my creation".

He was speaking in Dubai ahead of the Goldman Sachs Asset Management conference on the Middle East and North Africa, an annual gathering designed to work out the bank's broad investment approach to the region.

Whatever the critique of the Bric concept, there is no doubt it has become one of the guiding principles of economic and financial theory of the past decade, and has helped to change the way businessmen and financiers view the world.

He recently updated the concept to take in what he calls the Next 11 or N-11 economies: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.

His visit took in the UAE and other GCC states, and prompted some typically down-to-earth observations on the region's potential.

"From the broad Middle East region, there are two countries that have the population size to eventually become big enough, or N-11: Egypt and Iran. Both are in our list already," he says.

"No individual GCC country could reach their potential. If you thought of the GCC collectively, then you might think of them as having Bric-like potential, but not alone."

Even the biggest GCC country, Saudi Arabia, with its population of an estimated 25 million, is not a candidate for the lists currently, mainly because it lacks the basic criterion of having an economy that is more than 1 per cent of global GDP, Mr O'Neill argues.


http://www.thenational.ae/thenationalconversation/industry-insights/economics/master-brickie-builds-new-creation
Riaz Haq said…
A recent book "The Growth Map" features Goldman Sachs' Jim O'Neill's personal account of the BRIC phenomenon, how it has evolved, and where those four key nations currently stand after a turbulent decade.

And the book also offers an equally bold prediction about the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These developing nations may not seem exceptional today, but they offer exciting opportunities for investors over the next decade, just as BRIC did before them.

http://books.google.com/books?ei=k49mT87qIOqsiQKJ_PGiDw&id=C-yqJ8ftFBgC&dq=the+growth+map&q=Pakistan#v=snippet&q=Pakistan&f=false
Riaz Haq said…
Here are some excerpts of The Australian story on the eve of BRICS summit:

INDIA is routinely touted as a big emerging market and a rising global player. Tomorrow New Delhi will host the fourth BRICS summit of the non-Western powerhouses Brazil, Russia, India, China, and South Africa.
----------
Most major global corporations have a presence there, with substantial expansion plans. Many Indian corporations are expanding their footprints abroad, including in Australia, through investment, mergers and acquisitions. India's growing economic weight has translated into increased political clout.
----------
And yet India has the world's biggest pool of poor, sick, starving and illiterate. It ranks 134 on ease of doing business indicators, 119 on human development, 122 on gender equality, and 87 on corruption. On average, more than 16,500 farmers have committed suicide every year for 13 years running. The annual road death toll is around 150,000, thrice as many as the US or, on a per vehicle basis, almost 20 times the US. Most of those killed in India's traffic accidents are pedestrians, cyclists, motorcyclists and pillion riders - those from the poorer end of society.

Even this single statistic is a proxy for several ailments, including inadequate infrastructure that adds to road risks and public corruption that ensures weak compliance with driving skills and safety regulations.

A report published in January by the Hong Kong-based Political and Risk Consultancy rated India's bureaucrats the most inefficient in Asia with a score of 9.21 out of 10, below China (7.11), The Philippines (7.57), Indonesia (8.37) and Vietnam (8.54). Singapore was judged the best (2.25) followed by Hong Kong (3.53). The report was based on a survey of business executives. Respondents also highlighted onerous and complex tax, environmental and other regulations and a time-consuming, costly and unpredictable court system.

Also in January, the Program for International Student Assessment published its findings of comparative national academic performance of 15-year-old school students in maths, science and English. In the 73 countries tested, India came second last, ahead only of Kyrgyzstan. An eighth-grade Indian student fared the same as a South Korean grade three or a Shanghai grade two student.

Yet another study, also published in January, based on a survey of height and weight of more than 100,000 children in six states, found that 42 per cent of India's children were moderately-severely underweight, and 59 per cent suffered from moderate-severe stunting. Prime Minister Manmohan Singh described the results as a "national shame".

The following month a government committee concluded that Indian railways have been responsible for thousands of deaths. Some 15,000 people are killed every year trying to cross unfenced railway tracks, half of them in Mumbai alone.

The report called for urgent investment, but when the Railway Minister announced a fare increase to raise the revenue base to invest back in railways for modernisation and upgrade of services and safety, he was forced to resign by his own party, which is in the coalition government.

We read last year how India has more mobile phones than toilets. Some years ago, I had organised an international workshop in a resort along a beautiful stretch of India's eastern coast.

A European participant decided to go for a pre-breakfast run along the beach. I well remember his look of utter disgust and horror as he told us how he had to thread his way through the folks of the village squatting along the beach, defecating. According to a UNICEF survey last year, 58 per cent of the world's population practising open defecation lives in India....


http://www.theaustralian.com.au/news/world/india-rises-to-reveal-shameful-stench/story-e6frg6ux-1226311694875
Riaz Haq said…
Here's a NY Times on soaring stock market in Karachi, Pakistan:

If the best time to buy, as the old business adage says, is when there is blood on the streets, then Pakistan’s commercial capital, Karachi, offers the ideal investment opportunity.

For more than a decade, the sprawling seaport megalopolis of about 20 million people has been racked by political, militant and criminal violence that has taken thousands of lives. Yet, over the same period, the city stock market, which is also Pakistan’s main exchange, has posted spectacular results.

Over the past 12 months alone, the Karachi Stock Exchange has surged more than 44 percent, placing it among the world’s top-performing stock markets in dollar terms this year, according to Bloomberg.

That follows a decade of growth in which one dollar invested in an index fund of Pakistani stocks 10 years ago would have earned, on average, 26 percent every year, analysts say, in a period otherwise notable mostly for bad news. As the stock market rose, the Pakistani military leader Gen. Pervez Musharraf fell, Osama bin Laden was captured and Taliban violence spread from the northwest to cities across the country, including Karachi.

Just as surprising, perhaps, Wall Street firms are driving the latest phase of the stock boom. Bad news can make for a good bargain, they say.

“What you see in the popular press is just one part of the picture,” said Mark Mobius, a fund manager at Franklin Templeton Investments, which has more than $1 billion invested in Pakistan stocks, mostly in the energy sector. “There’s another side to these countries, where life goes on. And that’s what we focus on.”

The gloomy image of Pakistan obscures positive aspects of its economy that, investors say, make some companies an attractive bet. Beyond the headline news, much of the country is getting on with normal life. And with a population estimated at nearly 200 million people — a high proportion of them young — Pakistan offers a large, lucrative market for consumer goods, construction and financial services firms, which constitute the bulk of the Karachi stock market.

The biggest publicly listed companies — like the multinational NestlĂ©, the Oil and Gas Development Company and Fauji Fertilizer, a military-run conglomerate — pay handsome dividends, which makes them attractive to foreign investors.

And the recent election victory of Prime Minister Nawaz Sharif, a business tycoon, has injected confidence into the financial community, which had been wary of the previous government.

For a time, Pakistani stocks were undervalued by as much as 50 percent to account for risk, compared with a regional discount of about 20 percent, said Taha Javed, a financial analyst in Karachi. Now, as foreign investors pile in, he said, “we are catching up.”...


http://www.nytimes.com/2013/10/04/world/asia/amid-bloodshed-in-pakistan-a-stock-exchange-soars.html

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