Pakistans new Emerging market status is a sign of investor confidence in the country

    Leading International magazine the Diplomat has recognized that the macro economic management and fiscal discipline has helped Pakistan achieve the status of emerging market in the world.     

    In an article, the Tokyo based magazine noted that the achievements made by the country on the multiple fronts will restore confidence of investors and help attract more Foreign Direct Investment.                                                                                                                                                          

    The magazine states that economic growth is stabilizing Pakistan’s political atmosphere in Karachi, Balochistan, and the Federally Administered Tribal Areas (FATA).      

    The outclass performances of Pakistan’s banking, energy, cement, oil and gas, and fertilizer sectors have brought Pakistan into the limelight of stock markets around the world.     

    The magazine also notes that Pakistan`s KSE100 Index has outclassed the rest of Asia and Pakistan has become an emerging market.

    CPEC, as the flagship of China’s Belt and Road project, helped rapidly convert Pakistan into an Asian “emerging market.” The settling of the balance of payments also helped Pakistan to achieve this status. According to Finance Minister Mohammad Ishaq Dar in his budget speech on May 26, Pakistan would become an “emerging market” effective June 1 on the basis of the performance of the Karachi Stock Market (KSE100), which emerged as the most profitable market in Asia last year.

    Pakistan’s re-entry into the emerging market block after nine years was made possible by the country’s improving liquidity and growth. Pakistan lost this position in late 2008, following a period of market turmoil that halted trading for months in Karachi. Pakistan is the first country to get the frontier-to-emerging market promotion after Qatar and the United Arab Emirates several years ago.

    This is Pakistan’s first step toward becoming an “Asian Tiger” and it was achieved with amazing speed, thanks to CPEC-driven optimism. The upgrade will likely lure a wider class of investors, thereby injecting huge amounts of money into the country. The outclass performances of Pakistan’s banking, energy, cement, oil and gas, and fertilizer sectors added to this performance and brought Pakistan into the limelight of stock markets around the world. Global X MSCI Pakistan ETF quadrupled in value last year, reaching US$48 million. In 2016, Pakistan’s KSE100 was the top-performing market in Asia, with 46 percent growth.

    Other Asian giants like Japan, South Korea, Singapore, Thailand, and Malaysia have long resisted investing in Pakistan’s markets.Now the performance of the KSE100 has outclassed the rest of Asia and Pakistan has become an emerging market. If these countries continue to ignore the Pakistani market, it will clearly be for political reasons rather than market-driven sentiments.

    Foreign direct investment (FDI) in Pakistan did not go beyond $1.7 billion in 2017.  The performance of U.S. companies in Pakistan was outstanding but they invested less than in 2016. It was the same story for British, German, and Swiss companies as well as companies from the UAE and Saudi Arabia. Japan was a reluctant investor and has adopted a strong “wait and see” stance for over a decade, as has South Korea. Companies from Hong Kong did not follow in the footprints of China and also invested less in Pakistan, causing Prime Minister Nawaz Sharif to recently urge Hong Kong companies to invest more under CPEC. On the other hand, China has undertaken massive investments after 2011. The “emerging market” status would change this ongoing trend and attract more FDI.

    Japan, South Korea, and other East Asian investors in particular need to overhaul their basic investment strategy toward Pakistan and reap the benefits. The market is offering lucrative benefits. The KSE100’s outperformance is likely to continue given Pakistan’s GDP growth, falling poverty, and burgeoning middle class. GDP growth has hit an all time high of 5.2 percent in the past decade.⁠

    Posted on: 2017-06-02T15:00:00+05:00