KARACHI:
Stock market analysts have shown optimism that huge portfolio investment from India to Pakistan will follow the recent easing of investment restrictions that have hindered the cross-border movement of capital for decades.
India allowed Pakistani citizens and companies incorporated in the country to make investments in India in all sectors other than defence, space and atomic energy in the beginning of August. This announcement was followed by the reduction of items in the sensitive trade list by almost one-third besides the grant of permission to Pakistanis to buy shares in Indian companies.
“There’s likely to be more inflow into, rather than outflow from, Pakistan with regard to the recent developments. India’s stock market is expensive while Pakistan’s is fairly cheap,” says Muzzamil Aslam, Managing Director of Emerging Economics Research.
“You can have an oil share in Pakistan at half the price you’ll pay in India,” adds Aslam, who served as chief economist at JS Global until recently.
There was no provision in Pakistan’s laws that specifically restricted portfolio investment from Indian citizens, he said. Just like any other national, Indians would also buy shares in the Pakistani market through their regular trading accounts in international brokerage houses, he added.
“But Indian brokerage companies are now likely to collaborate with their Pakistani counterparts in a way that global financial services’ firms, like JPMorgan and Morgan Stanley, do by joining hands with local brokerage firms to trade on the Pakistani stock market. This development has a strong symbolic value,” Aslam said.
The recent abolition of some investment restrictions is likely to result in Indian and Pakistani brokerage houses joining hands to promote stock trading in each other’s country, which is expected to increase portfolio investment across the borders.
News stories in the Pakistani media say that Pakistani and Indian brokerage houses have decided to set up representative offices in the two countries after the successful conclusion of the recent visit of a Pakistani parliamentary delegation to Delhi.
There was an outflow of private portfolio investment from Pakistan amounting to $71.1 million in 2011-12. In 2010-11, the net private portfolio investment was $344.5 million. Similarly, in the first month of fiscal 2012-13, portfolio investment stood at $28.8 million, which came from the United Kingdom, Hong Kong, Switzerland and Australia, among others.
However, the volume of private portfolio investment from India to Pakistan has traditionally been negligible.
While Pakistan exported goods worth $272 million to India in calendar year 2011 as opposed to the imports from India costing $1.6 billion in the same year, media reports have quoted members of Indian and Pakistani business communities as saying that the volume of illegal trade between the two countries is approximately $10 billion annually.
Aslam stated that the size of Pakistan’s stock market was relatively small. “Of the approximate market capitalisation of $40 billion, free float is just about 25%, which means $10 billion,” he said, referring to the shares that are available to investors for trading on the stock market.
“Out of the $10 billion, about $2 billion is already foreign-owned,” he noted, saying that even a considerably small inflow, which is between $300 and $400 million, will leave a huge impact on the prices of Pakistani stocks.
Published in The Express Tribune, August 31st, 2012.
COMMENTS (26)
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@Ahmed: people have been predicting Pakistans doom since its birth, its a Nuclear capable country now.
Anyone with half a brain can see that a few thousand illiterate Taliban cannot take over one of the worlds largest armies and a nation of 180 million people.
India has better chance of disintegration than Pakistan. According to TIME maazines article, fully 1/3rd of India is in Maoist hands when the sun goes down.
@casim: I may not agree with what Ahmed wrote but Pakistan doesn't own "Muslims". We have 18 millions muslims who are Indian.
@Someone: "The possibility of Taliban taking over Pakistan is less likely than the possibility of some Hindu extremist party coming into power in India and ruling the country or gaining large votes – which I must point out is very possible in the next elections.
" The party you are referring to - BJP is only described as extremist by Congress and UPA for obvious reasons. BJP actively pursued peace with Pakistan when ti was in power during 1998-2004. When BJP leader Vajpayee was in power, he came to Lahore to initiate bus diplomacy and was willing disucss all issues - except Musarraf's Kargill derailed that conversation in 1999. Then when Musharraf came to power, he tried to give a second shot to peace instead of holding Musharraf's past against him. In Agra 2001 Indians and Pakistanis had productive discussions. Then Musharraf backstabbed Vajpayee through a swashbuckling interview he gave. Again after a major problem precipitated by JeM attack on Indian parliament, Vajpayee reopened back channel talks wit Musharraf that he himself acknowldges.
Whilethey have the tag of being anti Muslim, let's review who was made President during their time in power Dr. Abdul Kalaam who incidentally was also in charge of India's nuclar pogram during their reign.
YEs they did try to set right the minority appeasement policy followed by Congress. During their 6 year reign there was ONE communal riot. There was no other 6 year period in India's entire history since 1947 when there was that degree of communal harmony. Even the one riot that did occur in 2002 which we are all aware of, would not have occurred if a train full of Hindu pilgrims had not been burnt by some vengefl Muslims. Not justifying the death of a single innocent person. But this label for BJP is completely unjustified.
I agree with Ahmed...indian or pakistani but he gave a very reasonable opinion......as an Investor, I would not put my money into a country which has serious security issues...and with the level of internal trouble in pakistan, one would be crazy to invest there.... and for all those ignorant beings...Pakistan is facing existential threat...believe it or not but its not a secret for the world.....
The possibility of Taliban taking over Pakistan is less likely than the possibility of some Hindu extremist party coming into power in India and ruling the country or gaining large votes - which I must point out is very possible in the next elections.
@praveen: "The taliban taking over pakistan is clearly eminent ,not in future but immideate future.Think of Taliban Khan ."
Do you mean same Taliban Khan who is a also known as Zionist agent and stooge of the West. ??? My recommendation, Get a life and some knowledge.
@Ali: "Why don’t Indians comment on Indian issues?"
If you are referring to Indian investments in Pakistan, it is as much an Indian issue as a Pakistani one.
@Ali: Welcome to global village. It reminds me of a parable "If it is too hot for your comfort get out of the kitchen".
I think a person who will be investing in Pakistan now when rising violnece is taking its toll would be a nutcase. Anyways best of luck
@Ali: Its an Indian issue brother!!! Its the Indian investors who are supposed to invest in the risky Pakistani market.
@Ahmed: The situation is such that if you sound even a little logical or try to shine the light on what the whole world already hears and sees about Pakistan, the sleeping inhabitants of the land wake up and start screaming 'conspiracy' or then 'You must be a Hindu or Indian masquerading as a Muslim or Pakistani'. You have been ex-communicated because you have gone over to the sane side!
@Ahmed: Good reply friend. Unfortunately they will disown even their Pakistani compatriots as Indian agents, if the person happens to criticize the policies of their own country.
Although i am not an economist. Ahmed's opinion has more weight than others. Stock market capitalisaction can cross GDP.Capitalisation unlike GDP( we can call amount transaction) is wealth rather than income.Wealth can far exceed GDP. Pakistani stocks are higlhy undervalued because of soverign risk that pakistan poses to investor and particularly far away investors who constructs their opinion purely based on rating agencies. Ahemad, As your native counry you can analyse better the amount of risk that it posess and you can encash betther from the stocks through politico-economic-fianancial analys unlike efficient market hypothesis.
Let's leave politics, religion, or nationality out of this, shall we? For the record, I am a Pakistani American who runs a small hedge fund that invests globally. And, I certainly need no lessons in economics from someone who calls himself (itself?) "herpy-derpy". In any case, the comment that Pakistani stocks are valued at half price refers to the PE ratio not to market capitalization. And, the great existential risk that Pakistan poses is the reason why it is cheaper. I am fine if you want to hide your head in the sand and say that risk does not exist. But the market participants don't think so. (read up on EMH - efficient market hypothesis - if you don't understand what I am saying). Their opinion is the only opinion that matters, not yours.
Why don't Indians comment on Indian issues?
Honestly if we improve security not by talking peace but eliminating those extremists , all the other slides of Umar PTI nothwithstanding , we will get a boom. Hope those guys at GHQ understand
@THE
The taliban taking over pakistan is clearly eminent ,not in future but immideate future.Think of Taliban Khan .
I think the security environment is tied up with the rule of law. As an investor I would like to know the credibility of the Institutions for dispute resolution in a timely manner. Indian judiciary has earned there credibility in this matter. Back in 1990 few Canadians purchased a hotel in Russia. After three years local mafia came in and at gun point asked for the keys of the hotel and asked the owner to sign papers for sale at dirt cheap price.Dispute was not resolved legally. The PM of Canada approached the President of Russia to no avail. This basically dried up all the investment in Russia. Recent high profile trial of oilgards in Russia is another example. Question is if one can be abducted and converted forcefully and CJP could not do anything. Result was Hindus left for India with their money and knowledge. A penny saved is penny earned. Why not prevent the outflow of human and financial capital outflow by improving law and order situation at the same time?
@Ahmed: Fear mongering and falses claims seems to be the pastime of people like you. The chances of the taliban taking over Pakistan is the same as snow fall in Karachi... go figure!!
@Ahmed: It is just amusing how my Indian friends hide their identity to Muslim or Pakistani to talk non-nonsensical arguments! Securities value is determined by various factors! how can you give this absurd logic! you need to get fair amount of knowledge before you comment on the workings of a stock exchange:) lastly, if it was so easy for Taliban (as you Indians have made an obsession with them) to takeover Pakistan then why it hadn't happen in a decade since this propaganda has been in Indian & western media? and please next time comment with your real name :)
I love it when people with no financial background try to pitch in their two cents without know what they're actually saying.
@Ahmed: The market cap of Pakistani stock market is small because of the relatively small size of GDP as compared to India and also because the size of the companies trading there... NOT because of a security risk. As businesses expand, so does the size of companies / stock capitalization. Security risks is 'one' of the external factors that can influence the foreign investor - not 'the' factor.
To put this in context, there is a reason why Pakistani stock is twice as cheap than a similar indian stock. The immense risk involved. If the Taliban or other jihadi group takes over the country or if the country descends into a civil war of partition, the stock will not be worth the paper it is written on. The market is just factoring that risk in and investors wouldn't rush into it without careful consideration.