Equity markets: KSE best performing in world, says Khaleej Times

Op-ed in UAE-based newspaper claims that the best may be yet to come.

ISLAMABAD: Pakistani equities have delivered returns of 26% a year in US dollar terms for investors since 2009, making Karachi the best-performing frontier stock exchange in the world, reports Khaleej Times in an opinion piece by Matein Khalid, a global equities strategist and fund manager, based in the United Arab Emirates.

Khalid said that Pakistan’s stellar performance occurred despite the anti-Taliban war that has claimed 50,000 lives and endemic terrorist violence.

He further said that Pakistan has been in a macroeconomic sweet spot since early 2014. The State Bank of Pakistan (SBP)’s hard currency reserves had risen to $17 billion and the rupee actually appreciated against the US dollar in 2014, unlike the Japanese yen, the Thai baht, the Malaysian ringgit, the Indonesian rupiah, the South Korean won and the Indian rupee.

Khalid’s piece goes on to say that Islamabad signed its structural adjustment programme with the IMF and obtained $6.7 billion in funding from ADB, the World Bank and its Bretton Woods twin. Pakistan managed to sell $2 billion in Eurobonds and $1 billion in sukuk in the international capital markets. The $1.2 billion privatisation secondary public offering of Habib Bank was significantly oversubscribed. GDP growth is 4%, inflation has fallen from 10% two years to just over 3%, he added.



Khalid further said that the oil price crash was a windfall for Pakistan’s balance of payments, with the current account deficit a mere minus-one percent of GDP. The fiscal deficit has fallen from 8% to 5%, admittedly with cash transfers from state-owned banks and international donors.

The op-ed said that China's President Xi Jinping has promised a $46 billion economic corridor to Beijing's strategic ally in South Asia. The tax base of 1.7 million taxpayers is one of the world’s lowest at a mere 10% of GDP. Khalid wrote in the Khaleej Times that he believes Pakistani equities will continue their fairy-tale bull run in 2015 for three reasons. Firstly, the SBP has been in an aggressive rate cutting mode since last November, including a 1% rate cut to 7%. The 300 basis-point interest rate cuts by the SBP contrasts with India's 50 basis-point rate cuts by RBI Governor Rajan. Pakistani interest rates are now at 42-year lows, to levels last seen when the late Zulfikar Ali Bhutto was President of Pakistan in 1973.

This period also coincides with the launch of the Pakistan country index fund in New York after its Morgan Stanley predecessor PKF was delisted after the Kargil war and post-nuclear test US sanctions in 1998-99. Pakistani equities fell 10% in March after Everest Capital, a Florida hedge fund, failed and had to dump its KSE portfolios amid margin calls. Pakistan's sovereign credit rating is a B+ (Standard & Poor’s) and B1 (Moody’s).

Published in The Express Tribune, June 4^th, 2015.