Chen Shiyin and Susan Li, Bloomberg
Singapore/Hong Kong: Pakistan stocks, near a year-old record high, are the region’s best bet as the economy expands and political tensions ease, according to Merrill Lynch & Co.
“Pakistan is my favourite market,” Mark Matthews, the brokerage’s new chief Asian strategist, said in an interview in Singapore yesterday. “It’s really a domestic story, as only 15% of the economy comes from exports.”
Shares in Pakistan are less expensive than regional peers and offer higher dividends, Matthews, 39, said.
The Karachi Stock Exchange 100 Index yesterday rose 1.6% to 12,189.29, just shy of a record 12,273.82 set on 17 April last year. The measure has gained 21% this year, outpacing a 4.9% gain in the Morgan Stanley Capital International Asia Pacific Index.
Pakistan, South Asia’s second-largest economy, is forecast to grow 6.5% this year, slower than an earlier estimate of 7%, the International Monetary Fund said on 12 April. That compares with an 8.4% pace for Asia’s developing nations and 4.9% growth globally, according to IMF predictions.
The benchmark index is valued at about 14 times current earnings, according to Bloomberg data, less than the average 19 times of the MSCI gauge. Meanwhile, the dividend yield of the Karachi index is 4.38%, more than twice that of the regional measure.
Shares of Oil & Gas Development Co., Pakistan’s biggest energy explorer, have climbed 8.6% this year. The company, the nation’s largest by market value, is valued at 12 times earnings and yields 7.6%, according to Bloomberg data.
Pakistan Telecommunication Co., the nation’s biggest phone service provider, is trading at 11 times earnings, compared with an average 34 times for its Asian peers. The stock has gained 12% this year.
Easing political tensions in Pakistan may also provide a further boost for the nation’s stock market, Matthews said. Pakistan’s lawyers and opposition members have clashed with police at demonstrations held since 9 March after President Pervez Musharraf removed the country’s top judge.
Relations between Pakistan and neighbouring India are also set to thaw, helping to attract investors, the strategist said.
India and Pakistan have fought three wars since independence from Britain in 1947. Musharraf on 16 April told military commanders in Rawalpindi that relations between the two countries have “never been better.”
“The market’s been held back by politics, which I think has been misinterpreted,” Matthews said. “Ultimately, Musharraf will look to foster ties with India over the next five years and that will take away a lot of risk for the whole subcontinent.”
Matthews was appointed to replace Spencer White as Merrill Lynch’s head of Asia Pacific equity strategy and chief Asia strategist, spokesman Rob Stewart said on 17 April. He joined the company in 2005, after earlier working for Nomura Securities Co., ING Barings, Standard & Poor’s and CLSA Ltd, according to his Web site.
— With reporting by Josie Ling in Singapore