Comment by Riaz Haq on April 30, 2015 at 9:46am

THOSE in search of a thriving stockmarket, a stable currency and low inflation would not normally pitch up in Pakistan. It is more readily thought of as a pit of instability than as a source of opportunity. Yet Pakistan is enjoying a rare period of optimism about its economy.

The IMF reckons that the economy will grow by 4.7% next year, the fastest rate in eight years. Consumer prices rose by 2.5% in the year to March, the smallest increase for more than a decade. Twice already this year the central bank has lowered its benchmark interest rate. Some indicators are pointing to an upturn in spending. Compared with a year earlier, cement sales, which are a guide to how much construction is taking place, rose by 5.5% from July to March. Car sales rose by 22% over the same period.

The IMF reckons that the economy will grow by 4.7% next year, the fastest rate in eight years. Consumer prices rose by 2.5% in the year to March, the smallest increase for more than a decade. Twice already this year the central bank has lowered its benchmark interest rate. Some indicators are pointing to an upturn in spending. Compared with a year earlier, cement sales, which are a guide to how much construction is taking place, rose by 5.5% from July to March. Car sales rose by 22% over the same period.

A fall of two-fifths in the oil price is a huge slice of luck for a country such as Pakistan. It relies on imported fuel oil for two-fifths of its power supply and is prone to periodic balance-of-payments crises (see chart). The country’s import bill can easily overwhelm the foreign-exchange earnings from textile exports and the remittances that Pakistanis working in the Middle East and Europe send home. In 2013-14 Pakistan’s net import bill for oil came to $12.6 billion, or around 5% of GDP. But if oil prices stay low, Pakistan could save a total of $12 billion in the next three years, says the IMF. The money could be spent on things with more local content and give the economy a lift.

The government of Nawaz Sharif takes some credit for the economy’s new stability. It has stuck to an IMF programme agreed to in 2013, a few months after it came to power in Pakistan’s first-ever handover from one civilian government to another. Foreign-exchange reserves have more than doubled, to $17.7 billion. Electricity tariffs have been raised, and some unpaid bills collected, easing the cash burden on hard-pressed distribution companies. Tax receipts have risen, albeit from pitiful levels, in response to efforts to broaden the base and cut exemptions. The revenue agency has sent over 150,000 tax notices to non-payers. More retailers are being drawn into the indirect-tax net. A draft budget aims to bring the budget deficit below 4% of GDP in 2015-16, from a peak of over 8%.

A privatisation drive that stalled last June resumed in April, when the government sold its stake in Habib Bank, the country’s largest lender, for $1 billion. Three-quarters of bids came from foreign investors. Pakistan’s stockmarket has doubled in dollar terms since the start of 2012, thanks in large part to such foreign interest. Privatisations will only add to the market’s variety and appeal. Listed companies are highly profitable, although in part because they often face too little competition.

Visitors to Pakistan are surprised to discover good roads and a strong business culture. The country is mid-table in the World Bank’s ease-of-doing-business rankings, well above India. The infrastructure is solid enough to support big fast-food chains: McDonald’s, KFC, Pizza Hut and Subway have 187 outlets between them, more than in all of Sub-Saharan Africa’s “frontier” economies combined, says Daniel Salter, of Renaissance Capital, a stockbrokers.

The progress in providing economic stability is encouraging. But Pakistan needs sustained growth of 5-7% a year if it is markedly to cut poverty—at the last count, nearly a quarter of Pakistanis were below the poverty line. There are doubts to whether Mr Sharif has the strength and authority to implement deeper reforms. Despite a better electricity industry, power shortages remain a bugbear. Big firms in textiles, which account for over half of Pakistan’s exports, have long taken to generating their own electricity.


http://www.economist.com/news/asia/21650175-lower-oil-prices-prove-...

Comment by Riaz Haq on May 28, 2015 at 8:28pm

#Pakistan’s Biggest IPO planned in 8 Years. Steelmaker to raise 4 billion rupees. http://bloom.bg/1AykBAV via @Business #CPEC

Pakistan Prime Minister Nawaz Sharif’s push to build power plants, roads and rail links is prompting a local steelmaker to expand by selling shares in the nation’s biggest initial public offering in eight years.
Amreli Steels Ltd., the South Asian country’s biggest maker of steel bars used in construction, plans to raise as much as 4 billion rupees ($39 million) next month from the sale of 70 million new shares. The proceeds will help more than double its capacity to 450,000 tons from 200,000 tons, Amreli’s director Hadi Akberali said in an interview.
The steelmaker is betting on a potential boom in demand for the alloy as the $232 billion economy expands at the fastest pace in eight years, fueled by higher remittances and consumer spending. Last month, China signed deals for $28 billion of investments in Pakistan as part of a planned $45 billion economic corridor that includes power plants and dams.
“When your GDP is growing, your steel demand grows in multiples,” Akberali said. “If the Pakistan-China economic corridor takes off, even if we double or triple our capacity, I think it still won’t be enough.”
Second Best
Amreli’s share offer also comes amid gains in the benchmark Karachi 100 Index, which, according to data compiled by Bloomberg, is the world’s second-best performer in the past six years. The gauge may rally 52 percent in the next two to three years, Stockholm-based Tundra Fonder AB fund manager Shamoon Tariq predicted in an April interview.
The benchmark index fell 0.3 percent to 32,749 as of 11:36 a.m. in Karachi. This year, it has climbed 2 percent.
The company will raise between 2 billion rupees and 4 billion rupees, depending on the final price, Akberali said, adding he expects strong demand. AKD Securities Ltd. and Bank Alfalah Ltd. will be the advisers on the transaction.
A 4 billion-rupee IPO would be the biggest in Pakistan since Habib Bank Ltd. raised 8.1 billion rupees in 2007, according to data compiled by Bloomberg. The number of initial share offerings rose to five in 2014, the most in six years, according to data compiled by Bloomberg.
“This clearly shows companies have the confidence to raise funds through the equity market,” said Muhammad Imran, a fund manager at NBP Fullerton Asset Management, which oversees 57 billion rupees in stocks and bonds in Karachi. “A new listing will also improve the depth of the market and choices.”
------------------------

“We are looking at big infrastructure spending,” Akberali said. “Steel is very strongly linked to economic growth.”

Comment by Riaz Haq on June 4, 2015 at 9:54am

Finance Minister Ishaq Dar on Thursday evening unveiled the Pakistan Economic Survey 2014-15, with a focus on success stories over missed targets.

The minister had set an economic growth target of 5.1 per cent in the current year’s budget. At a provisional growth rate of 4.2pc, the target has been missed by a wide margin, but is still better than previous year’s 4.03pc.

Fiscal year 2014-15 was a mixed bag for Pakistan’s economy, with several positives to take hope from but not without a fair share of alarm bells— as always.

To get an economic snapshot of Pakistan right before the start of a new fiscal year, we look at some indicators over the past six years, including the latest numbers from the 2014-15 economic survey, and where convenient, compare performance with regional peers and historical numbers for evaluation.

Real GDP Growth

For fiscal year 2014-15 ending in June, Pakistan’s GDP grew 4.2%, which confirms two consecutive years of increased growth after a couple of years of stagnancy. Growth this year was driven primarily by the services, industry and agriculture sectors.

Source: Pakistan Economic Survey

While that is commendable, growth is still far below the 5-7% required to absorb new entrants in the labour force to check rising unemployment.

If we compare these numbers with GDP growth for the entire South Asian region— of which Pakistan is the second largest economy—we find that Pakistan’s growth of almost 4% in the past five years lags its regional peers in South Asia who averaged almost 7%.

Source: World Bank

Bangladesh has been growing at over 6% for the past few years, while India, despite two years of modest growth in 2012 and 2013, has been able to maintain average growth of well over 5% in the past five years.

Inflation

Inflation in Pakistan has fallen dramatically in FY2014-15, with pace of declines being faster than some regional peers. Most of the declines are attributed to cheaper oil prices that fell by almost 50% in the same period.

Source: World Bank Global Economic Prospects, Jan 2015

In addition to lower oil prices, the lagged effect of “monetary tightening” in 2013 (increased interest rates) led to an ease in inflation not only in Pakistan but also in India and Sri Lanka (World Bank GEP 2015).

But since then, the State Bank of Pakistan has been pursuing a loose monetary policy. Just a couple of weeks ago, the central bank slashed interest rate for a fourth consecutive time since November 2014— this time to a 42-year low of seven percent.

Interest rate has fallen 300 basis points between November 2014 and April 2015.

This is a clear sign of positive economic health, especially with regards to prices, such that the government now wants to spur economic activity without worrying about higher prices.

Finance Minister Ishaq Dar had welcomed the latest cut in interest rate: “The lowering of interest rate is a manifestation of improvement in macro-economic conditions as reflected in multi-year low inflation and considerably improved external account,” he said.

Despite the sharp fall, Pakistan’s average inflation in the past five years is slightly higher than the regional (South Asian) average.

World Bank Data

Tax-to-GDP

Source: Pakistan Economic Surveys 2009-15

Not only Pakistan but other larger countries in South Asia—such as India and Bangladesh— have struggled on account of tax revenue, with tax-to-GDP ratios declining or flat in the last decade.

According to the economic survey unveiled today, Pakistan's tax revenue as a percentage of GDP has declined significantly in the past year, from 10.2% in 2013-14 to 7.5% in 2014-15.

The latest survey also revealed that Pakistan's tax expenditure in the form of exemptions has increased 39% over last year— from Rs 477.1 in FY2013-14 to Rs 665 billion in FY2014-15 despite structural reforms to increase tax revenue by broadening the tax base and improving tax administration being a priority under the IMF Extended Fund Facility (EFF).

In the March 2015 update on Pakistan’s sixth review under the programme, Pakistan met all quantitative performance criteria for end-December 2014— except federal tax revenue which it missed by Rs 22 billion.

In the same country report, IMF notes that while tax revenue as a percentage of GDP may register a one percentage point increase this year owing to continued reforms, the ratio remains one of the lowest in the world and reforms in this regard need to persist.

Health

According to the Pakistan Economic Survey 2014-15, the government spent 0.42% of GDP on health in fiscal year 2014-15. While actual expenditure has been rising year-over-year, the health-to-GDP figure has been more or less stagnant at under 0.5% for decades.

Since government calculations of health as a percentage of GDP may vary from country to country depending on how health expenses are defined, using World Health Organisation (WHO) statistics seems a better way for cross-country comparisons of the metric.

As the table depicts, while all three South Asian countries’ expenditure on health as a portion of GDP has remained flat in the past few years, Pakistan’s average of almost 3% is the lowest among the three.

This ignorance has translated into poor life expectancy rates not only for the region but for Pakistan in particular, which has the highest infant mortality rates among the three countries.

About half of under-five deaths worldwide occur in only five countries: India, Nigeria, Pakistan, the Democratic Republic of the Congo, and China (World Development Indicators 2015, World Bank).

Education

On average, over the past 5 years, Pakistan's expenditure on education as a percentage of GDP has been consistent at around 2pc.

This year, Pakistan's literacy rate fell 2 percentage points over last year, according to the PES. Education expenditure as a percentage of the GDP also fell over the same period.

This year's PES shows that gender disparity in education still persists, with a difference of approximately 20pc or greater between the sexes apparent in both provincial and national literacy rates.

Source: PES 2014-2015

Compared to regional and global averages, Pakistan's expenditure on education as a percentage of GDP has consistently remained lower than both averages, except for during 2007-2009 and 2011-2012, where it was on par with the South Asian regional average.

Source: World Bank

PSDP Expenditure

While the budget for Public Sector Development Programme (PSDP) has increased steadily and significantly over the 2009-2015 period, actual PSDP expenditure fell marginally during FY13-14, with the most notable decrease apparent in total federal PSDP expenditure and special programmes.

A common trend observed during 2009-2015 with respect to PSDP expenditure is that allocated budget under the head is often higher than actual expenditure ─ except during FY11-12, where PSDP expenditure was greater than the budgeted PSDP for the same time period.

Expenditure on Corporations, Earthquake Reconstruction and Rehabilitation Authority (ERRA) and Special Programmes was greater than the budgeted amount for the same heads. Expenditure on ERRA went over budget in two consecutive fiscal years ─ FY10-11 and FY11-12.

While actual expenditure was greater than budgeted expenditure in FY11-12, expenditure fell below budgeted PSDP in subsequent years, showing a sharp decline in FY13-14.

Despite the government’s emphasis on the need to meet various United Nations Development Programme Millennium Development Goals, a portion of the PSDP budget was only allocated towards meeting the MDGs in FY14-15.

New Development Initiatives and Federal Development Programmes, Projects for Provinces, and Special Areas were budgeted in FY13-14, but no expenditure was made on these initiatives during the same time period.

While the former was budgeted for only in FY13-14, the latter has not been budgeted for following FY13-14, and no expenditure has occurred in this area since FY11-12.

While Provincial Development Programmes have consistently been allocated a portion of the PSDP budget over 2009-2015, there has been no expenditure on the same during the time period.

A shortfall in expenditure of Rs39.55bn was recorded in the PES during FY13-14.

Most projects financed by PSDP funds currently in the pipeline show an overwhelming concentration on Punjab, followed by Punjab, Sindh and Khyber Pakhtunkhwa.

The difference between actual and budgeted PSDP has, in the past, been attributed to a shortfall of revenue due to inadequate tax collection, deviation due to the need to meet the fiscal deficit ceiling, and release of most project funds after the third quarter of the fiscal year.

http://www.dawn.com/news/1186172/pakistan-economic-survey-two-years...

Comment by Riaz Haq on July 2, 2015 at 8:16am

Consumer price index clocked in below market expectations, helping Pakistan equities inch closer to the 35,000-point barrier on the first day of the new fiscal year.

A bullish sentiment was witnessed across the board as blue-chip stocks attracted interest with interest shown in cement, fertiliser and oil sectors.

At close on Wednesday, the Karachi Stock Exchange (KSE) benchmark-100 index ended at 34,843.6, recording an increase of 1.29% or 444.74 points.

JG Global analyst Umair Hasan said the market continued its bullish momentum as CPI for June clocked in at 3.16%.

“Consequently, strong investor interest was witnessed in cements with DGKC, FCCL and MLCF all ending 1.5%, 3.2% and 2.2% higher, respectively,” said Hasan. “Leveraged scrips saw positivity through the day’s trade.

“With expectations in the market of government imposing gas tariff hikes, SNGP and SSGC remained strong with particular investor interest, ending 4.9% and 4.8% higher, respectively.”

Hasan added that a possible delay in implementation of GIDC translated into a positive impact amongst fertiliser scripts as ENGRO, FFBL and EFERT, with all ending higher.

“BYCO continued its rally and the market continued its recent trend with sideboards remaining in the limelight as JPGL, PTC, PIBTL and TELE all ending higher.”

An analyst at Topline Securities said the Karachi bourse rallied after lower than expected CPI.

“Index heavy weight MCB, ENGRO, HUBC and OGDC contributed 210 points to the index gain of 1.3%.”

“HUBC rallied by 2.6% after Supreme Court dismissed a petition filed by FBR, and maintained its decision in favour of HUBC.”

Trade volumes increased to 376 million shares compared to 347 million on Tuesday. The value of shares traded during the day was Rs12.8 billion.

Shares of 361 companies were traded on Wednesday. Of these, 245 companies closed higher, 99 fell and 17 remained unchanged.

PACE (Pakistan) Limited was the volume leader with 26.8 million shares, gaining Rs0.43 to close at Rs7.42. It was followed by NIB Bank Limited with 21.6 million shares, gaining Rs0.18 to close at Rs2.20 and Dewan Cement with 20.4 million shares, gaining Rs0.53 to close at Rs15.05.

Foreign institutional investors were net buyers of Rs182 million worth of shares during the session, according to data compiled by the National Clearing Company of Pakistan.

http://tribune.com.pk/story/913284/market-watch-lower-than-expected...

Comment by Riaz Haq on July 11, 2015 at 5:18pm

#China’s Market Intervention & #Pakistan Lesson: Global Ponzi Denouement? 

http://blogs.barrons.com/emergingmarketsdaily/2015/07/10/chinas-mar... … via @barronsonline


For investors, the net affect of China’s actions relieved some of the pain, at least among some China-focused exchange-traded fund returns this week: The Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) is up 5% today, and up more than 1% for the week. The fund is now up more than 15% year to date. The Market Vectors China ETF (PEK) is up 7% today and up 2% for the week, bringing its year-to-date rise to more than 17%. But the iShares MSCI China ETF (MCHI) hasn’t fared as well: while up 4.6% today, the fund is down 6.5% for the week, and up 3.6% for the year.

“Most investors seem to believe the [China] stock market bubble was officially sanctioned. Its ongoing collapse has destroyed the authorities’ credibility and could easily spill into the already enfeebled economy … The Chinese authorities including their central bank have now lost a huge amount of credibility with investors and bystanders alike. Unlike the western authorities whose reputation for economic management remains in tatters after presiding over the Global Financial Crisis (GFC) in 2008, the credibility of the Chinese authorities had remained high for their handling of the 2008 crisis.”

Pakistan, a country to which Edwards feels a “close affinity” because his father grew up in Karachi in the 1920s, offers important lessons in the China crisis. In sum, Edwards writes:

“In 1998 a ‘floor’ was put under the Karachi SE100 to stop its collapse. Unsurprisingly when trading resumed, the slump continued apace. The episode left the authorities’ reputation in tatters. …

The same loss of confidence in the omnipotence of the Chinese authorities will surely ultimately swirl westward. The Federal Reserve and the European Central Bank have created similarly grotesque stock market bubbles in an effort to shore up their anaemic economic expansions. Do not be surprised when the Standard & Poor’s 500 index collapses in exactly the same way as the Shanghai stock exchange, and don’t expect the panic monetary measures that will be enacted (more quantitative easing) to prevent the ultimate denouement of this global equity Ponzi scheme.”

Edwards offers this caveat: ”my thoughts here are entirely my own views and not the Societe Generale house view. I am the ‘Alternative View.’ I am merely a ‘teenage scribbler,’ as former UK Chancellor Nigel Lawson dismissively called his critics in the 1980s, when they dared to query the sustainably of his economic policies – which indeed ultimately turned out to be ruinous.”

Comment by Riaz Haq on November 14, 2015 at 9:38am

#Pakistan and #Vietnam: Frontier Market Fund Managers' Favorites #MSCI #ETF #FM #PAK http://www.barrons.com/articles/pakistan-and-vietnam-frontier-fund-... … via @barronsonline

Frontier markets are emerging markets’ smaller, more fragile siblings, but these tiny economies–ranging from Africa to the Middle East and on to the fringes of Asia–usually offer the prospect of more growth.

We reached out to two frontier fund managers to ask where they are picking stocks. Vietnam and Pakistan are two common favorites. A third attractive country knocking on the emerging market category’s door is Saudi Arabia.

Both emerging and frontier countries offer cheaper valuations than developed markets. But frontier markets, based on Standard & Poor’s Frontier BMI Index excluding Gulf Cooperation Council countries in the Middle East, boast higher margins, lower leverage, and a higher yield—nearly 4%—to compensate for their volatility. Earnings growth over the past three years in frontiers, at 13%, has been better than in emerging markets, at 11%.

Neither market is faring well. The MSCI Frontier Markets Index includes 27 countries, from Vietnam to Nigeria. The iShares MSCI Frontier 100 ETF (ticker: FM) is down 12% in 2015. The MSCI Emerging Market Index is made up of 23 countries from China to Peru; the iShares MSCI Emerging Markets ETF (EEM), is down about 15%.

The managers like smaller companies that get dwarfed in the indexes. Asha Mehta, a frontier-market portfolio manager at Acadian Asset Management in Boston, likes the energy-intensive cement sector in Pakistan. It benefits from the lower price of crude, and regulation that supports the private sector. Valuations are attractive, at roughly nine times trailing earnings.

SHE ALSO LIKES THE SAUDI MARKET, though it’s nearly twice as expensive as Pakistan. Surprisingly, it’s not as closely correlated with the oil industry, which is mostly state controlled. Mehta likes petrochemicals, which benefit from lower oil prices; as well as telecom and infrastructure, which benefit from a growing, young population with increasing spending power. The Saudi market is neither emerging nor frontier, though its liquidity is greater than all frontier markets combined. One catalyst: Mehta thinks the Saudi market could be added to the MSCI Emerging Market Index as soon as 2017, and that as EM-indexed funds pile in, Saudi market investors could enjoy big gains. A key risk is the country’s growing budget deficit as oil prices stay low. But the country has ample reserves to fund social programs and infrastructure projects.

How to play them? Small, illiquid ETFs include the Global X MSCI Pakistan ETF (PAK) with assets of just $5.6 million, and the just-launched iShares MSCI Saudi Arabia Capped ETF (KSA), at about $5 million.

And then there’s Vietnam. Valuations are getting pricey, at about 16 times trailing earnings, but Vietnam is expanding as the manufacturing alternative to China. Vietnam is the largest country weighting in the Frontaura Global Frontier Fund, a hedge fund managed by Nick Padgett in Chicago. Vietnam’s trade deals in Europe, and its inclusion in the Trans-Pacific Partnership, put the country in the best economic position Padgett has seen in years.

“Frontier markets are where emerging markets were 20 to 25 years ago,” Padgett says. “It is a long-term investment and it is not right for everyone. You can’t sell at the wrong time.”

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