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Summary Pakistan’s stock market has risen substantially since 2012, yet valuation is still extremely low. Pakistan’s stock exchange has had substantial performance with a YTD return of 8.87%, and a 1 year return 21.18%. Terrorism has been decreasing substantially in Pakistan, according to a report released by the Department of State. Inflation has recently improved from the high levels consistently experienced between 2010 and 2014. Certain industries have displayed substantial growth, such as the cement industry, which grew by 57% this year. The Global X MSCI Pakistan ETF (NYSEARCA: PAK ) is an excellent value pick, and a closer examination of Pakistan’s economy, stock market, and political risk all verify that soon to emerging Pakistan is an excellent investment climate. The fund’s P/E ratio is currently 9.12, which is low for Pakistan, and is also lower when compared to other ETFs in frontier and emerging markets. The ETF was just created this year, and its price has consistently been between 14.00-16.94. PAK data by YCharts The Karachi Stock Exchange Pakistan’s stock exchange has had substantial performance with a YTD return of 8.87%, and a 1 year return 21.18%. Such a high index gain could be met with further growth, by strategically investing in undervalued companies. The Global X MSCI Pakistan ETF is an excellent way to potentially outperform the index, while the true value of value investing in individual companies is unfortunately unavailable to US investors. (click to enlarge) Source: Trading Economics The fund invests in some of the largest market cap companies from the KSE 100 index. Liquidity of the Karachi stock exchange is very high, with the top 20 most liquid stocks trading between 2 million to 12 million shares daily. The average P/E for the 20 most undervalued companies from the KSE 100 index is 6.6. Substantial higher valuation can be found for other companies from the KSE 100, verifying that the fund can overall be considered cheap. Pakistan’s Annual GDP Growth (click to enlarge) Source: Trading Economics Pakistan’s annual GDP growth is expected to increase to 4.96% by the 2nd quarter of 2016 . The correlation between GDP growth and the gain of Pakistan’s stock market is clear, by examining the rise that began in 2012, and the lower levels of growth experienced in 2010. Consumer Spending/Inflation (click to enlarge) Source: Trading Economics Consumer spending growth has been substantial in Pakistan, further attributing to the country”s economic growth. (click to enlarge) Source: Trading Economics Inflation has currently become drastically lower, and is projected to remain near 2% during the next 12 months. This represents substantial improvement from the drastically higher levels of inflation between 2010 and 2014. From Frontier to Emerging Pakistan is on track to soon be an emerging market, and high levels of economic growth can be seen, with specific industry outliers that are displaying substantial growth. Charlie Robertson, London-based chief economist at Renaissance Capital Ltd., said the following regarding the untapped potential of Pakistan: “It is the best, undiscovered investment opportunity in emerging or frontier markets. What’s changed is the delivery of reforms-privatization, an improved fiscal picture and good relations with the IMF.” The IMF has said that Pakistan is making excellent progress in meeting targets for economic growth. Pakistan’s cement industry in particular has displayed substantial growth, with 57% growth in the past year. D.G Khan Cement gained 62% this year, Maple Leaf Cement Factory Ltd. gained an impressive 161% this year, and Fauji Cement Co. gained 81%. The nation’s construction industry is also a bright spot, as it grew by 11.3%, nearly double the 5.7% target. Decreasing Terrorism Apart from the fact that Pakistan’s stock market has done nothing but soar since 2012, amidst issues with terrorism, investors can feel further confidence regarding the trends of reduction of terrorism in Pakistan. According to a report released by the US Department of State , Pakistan was among the top of a list of 95 countries in the world where terror attacks decreased. The overall increase of terrorist attacks and deaths in these 95 countries was 35% and 81% respectively, edifying that Pakistan is an outlier in terms of decreasing terrorism. With low valuation and high growth, investors can feel further confident in Pakistan, as terrorism is decreasing substantially. Conclusion Now is certainly a strategic time to invest in Pakistan, as valuation is current low, and the country is experiencing substantial growth. Inflation has drastically improved from the high levels from 2010 to 2014, and terrorism has very recently been declining faster than other countries. The Global X MSCI Pakistan ETF is an excellent way to profit from Pakistan’s growth, with the superior model of directly invest in equity in Pakistan not being available to US investors. The newly launched fund’s price has remained relatively consistent, and valuation is still incredibly low. Now would buy an excellent time to buy and hold long term, waiting for an increase in price to come as investors realize Pakistan’s potential. Until then, Pakistan’s status is certainly being relegated, and the early movers are sure to receive substantial returns. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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