Pakistan’s equity market has been outperforming China’s and India’s markets by a big margin in recent years. In the last twelve months, Global XMSCI MSCI +% Pakistan ETF was up 20%, beating India’s and China’s comparable ETF’s by almost two to one, according to an article published in Forbes – an American business magazine, published bi-weekly.
“That may come as a big surprise to some. Pakistan has been suffering all sorts of terrorist attacks,” remarked the Forbes article, contributed by Panos Mourdoukoutas. Highlighting the reasons behind good performance of Pakistan’s market, the Forbes Contributor articulated: “. Terrorist attacks don’t usually affect financial markets, unless they are disruptive to trade, which hasn’t been the case in Pakistan. Its market reform efforts have been getting a couple of votes of confidence from overseas like $1 billion in support from the World Bank – and a couple of domestic acquisitions from foreign suitors like the acquisition of Karachi’s K-Karachi by Shanghai Electric Power Co. “While Pakistan’s market has been getting a couple of endorsements from overseas institutions and investors, China’s markets have been unsettled and while India has stayed on course with reforms, execution is a problem,” the article remarked.
A few words of caution: Frontier markets are highly volatile, with one year’s big winners turning into next year’s big losers. Besides, with a big run up over the last five years, most of the gains are already behind, for now.
The magazine’s endorsement of the Pakistani market must have cheered up the Nawaz Sharif government, struggling to deliver on its election promises, such as ending rolling blackouts. Such endorsements by foreign institutions and media are often touted by the government as a ‘success certificate’ of its economic and financial policies.
What the government and its supporters tend to conveniently overlook, or downplay, while flaunting ‘international approvals’ are the ‘words of caution’ that often accompany these endorsements as footnotes.
The country’s economy is indeed in a much better shape now than it was before the PML-N came to power over three years ago. It has picked up momentum and growth has escalated to an eight-year high of 4.7pc. Inflation is at its lowest in decades and is expected to remain much below the target of 6pc for the present year. The current account deficit has been significantly reduced to an average 1pc, from 4pc, and the fiscal gap has been almost halved to 4.3pc from 8.2pc of GDP. Remittances sent by Pakistani workers from across the world have peaked to $19.90bn from $13.9bn, and foreign exchange reserves have doubled and are good for the five-month import bill of the country. The IMF feels that Pakistan economy has now reached a position where it will be able to absorb mild shocks.
But that is that. Little has been done so far to restructure the economy on a sustainable growth path as is reflected by sliding exports, failing agriculture and a collapsing power sector. Private investment is still depressed despite the interest rate of 5.75pc being at its lowest in 46 years. Pakistan remains a frontier market in the eyes of foreign investors with risks outnumbering positive developments as is indicated by falling FDI over the years. Exports have dropped by a fifth in three years. And this downward journey continues unhindered with the country’s overseas shipments going down by 8.19pc and imports rising by 10.32pc in the first two months of the ongoing fiscal, to August from a year ago. The trade gap has, thus, widened by over 27pc, wiping out benefits of low global oil prices and growing remittances.