Indian Prime Minister Narendra Modi's threats of war and Pakistan's isolation have failed to deter investors as KSE-100 index made new highs this week. The key index of Pakistani shares closed at an all time high level of 41,412.04 points this week. Pakistan shares index has continued to outperform all regional and emerging market indices over the last 5 years.
First came "boli nahi, goli" (Bullets, not talks). Then came "chappan inch ki chhaati" (56 inch chest, 44 actual according to Modi's tailor) and "Munh tor jawab (Jaw-breaking response) followed by threats of isolating Pakistan and claims of surgical strikes across the line of control in Kashmir.
Investors ignored all of Modi's bluster as just rhetoric and drove Pakistani shares to a new all-time record.
To add insult to injury, the investment flow maintained Pakistan market as the best performer in the region with KSE-100 outperforming all regional and emerging market indices over the last 5 years.
As of Sept 30, 2016, KSE100 index, the PSX's key stock index, has gained almost 24 percent year to date making Pakistan the best performing market in Asia. Vietnam and Indonesia follow with returns of 18% and 16.8%, respectively, while India’s Sensex Index has gained only 6.7%.
Year-to-date, the Global X MSCI Pakistan ETF (PAK) has gained 21.7%, according to Barron's Asia.
Pakistan's shares are still selling at a big discount in terms of average price-earnings ratio of just 9.7 while other major indices in emerging markets like India are trading at much higher PE ratios of 15 or more.
A total of 576 companies are listed on the PSX, with an aggregate market cap of slightly higher than 8 trillion rupees (US$80 billion), according to Nikkei Asian Review. PSX market cap is just 28% of Pakistan's GDP of $280 billion.
ADB Pakistan Forecast:
The Asian Development Bank (ADB) has recently raised Pakistan's economic growth forecast for fiscal year 2017 (from July 2016 to June 2017) from 4.8% to 5.2%. The Bank also sees brighter outlook for the the entire South Asian region.
Pakistan's economic recovery is in full swing with double digit growth in multiple industries, including auto, pharma, chemicals, cement, fertilizers, minerals, etc. It is expected to pick up steam over the next several years with new investments on the back of China-Pakistan Economic Corridor related projects.
Investors have brushed aside Indian Prime Minister Narendra Modi's threats against Pakistan to drive the shares index to a new record high. They have expressed strong confidence in Pakistan's economy to continue to perform well.