Bulls on the door: Resilient investors remain optimistic despite Pakistan’s daunting challenges

May 23, 2023 (MLN): In the face of scary economic challenges and despite the chorus of skepticism, there is a certain group of resilient investors existing who believe that the country is not going to default any time soon.

Pakistan will not default on its sovereign debt as the country’s commercial debt obligations, which will not be rolled over, are very low- $3 billion due over the next 12 months.

This much debt can be managed by careful management of the current account balance and by the support of friendly countries, according to the latest report “We are bullish on Pakistan” by KTrade noted.

Geopolitics has become the most important factor to understand for navigating financial markets. This is true, not just for Pakistan but for all investments.

“Our engagements and meetings with global leaders and policymakers lead us to believe that Pakistan will get sufficient support to avoid a hard sovereign default,” the report said.

Both Pakistani equities as well as sovereign bonds have now become attractive asset classes, and are likely to generate multi-bag returns for investors. It is not surprising that many large business groups are buying back stocks of their own companies, according to Ali Farid Khuwaja, Chairman KTrade.

“We are conscious of the magnitude of the economic challenges, which is why we have been most bullish on Gold for over a year. However, we now think that the pessimism is already reflected in most asset prices,” he added.

While recent measures taken to control the current account are not long-term fixes, we think that they would be sufficient to manage the liquidity problem, the report further noted.

This will give time to the government for finalizing investment terms with countries, such as UAE, Qatar, and most importantly, with China and Saudi Arabia, it said.

It is quite apparent that the valuations in fixed-income and equity markets are cheap, indicating that the market is expecting Pakistan to default. Stocks are trading at 3x PE, compared to the historical average of 7x and the CDS spreads are the widest globally.

“We understand that being bullish on equities at this time is a deeply contrarian call. Even the domestic analysts have started to call out the possibility of default,” the report reads.

The report is of the view that Pakistan does not have a solvency issue. External debt is only 24% of GDP ($85bn) and commercial debt is only 7% of total debt. Market debt is only $7.8bn.

Meanwhile, the report assumed the purchasing power of the citizens through the business of restaurants on the food streets of Karachi, Lahore, and Islamabad which is sufficient to see that there is no domestic crunch.

In addition, the changing world order wherein the past 12 months has seen some massive changes in the global political landscape.  The decline of the US and the move to a multipolar world has been long called by many.

The reading of global geopolitical trends, along with the government’s initiatives on both foreign policy and financial management, make this resilient group of investors confident that Pakistan will not default.

Copyright Mettis Link News