South Asia Investor Review

Talking with CNBC today, Mohamed Ali Alabbar, Chairman of Dubai-based Emaar Properties, said he believes Pakistan represents a great investment opportunity for his company as it goes global. In fact, he repeated it twice to convince Erin Burnett, the CNBC anchor, who appeared surprised. Alabbar further said Emaar sold a major project yesterday within hours of launch in Pakistan. A massive real estate project valued at $43b by Emaar is underway in Pakistan to develop two island resorts near Karachi. This is Emaar's single largest project and supersedes the $26.7 billion King Abdullah Economic City project in Saudi Arabia announced in 2006. This project will include office buildings, shopping malls, restaurants, hotels, apartments, golf courses, and beaches. The two islands will be self-contained cities spread over 30,000 acres of land. Emaar has already energized the Pakistani economy with development projects worth $2.4 billion. Emaar has unveiled its first master planned communi

Last Sunday was a sad and a historic day in Southeast Asia as General Suharto, a key architect of ASEAN, left this world at age 86. It seemed like any other day in Indonesia and the world. There was a state funeral but few world leaders mourned his passing. However, the General's close friends and co-architects of ASEAN, Singapore's Lee Kwan Yu and Malaysia's Mahathir Muhammad, reportedly made a visit to his deathbed and wept. Lee, 84, and Mahathir, 82, paid what they knew would be their final respects to a former comrade-in-power, in a moment pregnant with symbolism as the curtain was drawing on a key regional actor. The death of Suharto, the most senior of the three ASEAN octogenarians, marks the beginning of the end of a defining generation of regional leaders, according to a Yang Razali Kassi of Pacific CSIS . General Suharto leaves a mixed legacy for Indonesia and the entire region. He ruled with a firm hand over a diverse and sprawling country. Many will remember him

Internet services have been disrupted in parts of the Middle East after damage to an undersea cable in the Mediterranean. There was disruption to 70% of the nationwide network in Egypt, a government official told Reuters. There was also disruption in the United Arab Emirates (UAE), Kuwait and Saudi Arabia, reported the Associated Press. India also suffered up to 60% disruption, a national industry body told Reuters news agency. Blogger Masud Reza from Pakistan is reporting that Pakistan is also affected by this outage. Mesud's post says: "At approx. 11:30am today, the SMW4 Segment 4 Sumbarine Cable went down due to a fiber cut between Marseille and Palermo due to which the Internet connectivity in Pakistan is severely affected. At this moment, TWA1 customers are suffering the most. PTCL has switched it's Internet traffic from SMW4 to SMW3. Let's hope that this fault is repaired soon since degraded Internet service cripples internet for business. Update: A ship has lef

Philip Morris International, the international unit of the US tobacco giant Philip Morris often described as a merchant of death, is building a new massive cigarette plant in Pakistan. Philip Morris is expected to spin off PMI as an independent company to be unconstrained by the U.S. tobacco regulations and out of reach of American litigators. Importantly, its practices would no longer be limited by American public opinion, paving the way for trying out new products. As the smoking rates in developed countries have slowly declined, they have risen dramatically in some developing counties, where PMI is a major player. These include Pakistan (up 42% since 2001), Ukraine (up 36%) and Argentina (up 18%), according to the Wall Street Journal. The World Health Organization's Framework Convention on Tobacco Control, an international public-health treaty, has 152 participating countries, including China, Brazil and Pakistan. While it has led to greater regulation in many of the world's

Pakistan’s economy has recently been growing at 7-8% per year, doubling its GDP over the last 7 years. The industrial growth rate has been closer to 12.5% per year during this period, contributing 38% of the total economic output of Pakistan. Per capita energy consumption of the country is estimated at 14 million Btu, which is about the same as India's but only a fraction of other industrializing economies in the region such as Thailand and Malaysia, according to the US Dept of Energy 2006 report. To put it in perspective, the average world citizen uses about 65 million BTUs and an average American consumes 352 million BTUs. With 40% of the Pakistani households that have yet to receive electricity, and only 18% of the households that have access to pipeline gas, the energy sector is expected to play a critical role in economic and social development. With this growth comes higher energy consumption and stronger pressures on the country’s energy resources. At present, natural gas an

Extreme Investing or Safe Haven? Some call it "Extreme Investing". Call it by any name, but international investors have discovered Pakistan as an attractive destination. Referring to the recent upsurge in violence, Bank Muscat CEO Ali Issa said, "We are not worried about our investment in Pakistan, we think it's just a passing phase." Chief Strategist for Merrill Lynch Mark Matthews is the most bullish about Pakistan, calling it a “safe haven” for investors. Matthews believes Benazir Bhutto's death is "on the whole, largely irrelevant to the economy, which like other places, is what really moves the stock market." He says Pakistan represents the “biggest information arbitrage,” which in its crudest terms, means that body bags are good for stock pickers. He reckons that the slew of bad news from Pakistan is diverting people’s attention from the fact that the Pakistan economy is humming along nicely, with growth forecast to reach 7% this year, a

A private-equity fund solely dedicated to investing in Pakistan was closed December,2007,capping a year in which the country was one of the hottest emerging markets despite its political turmoil. JS Group, a Pakistani financial services group, is the sponsor and a large investor in the new JS Private Equity Fund, which was closed on Dec. 31 at $158 million. The fund, launched in 2006, is likely the third or fourth private-equity fund to invest solely in Pakistan. There are also several regional funds with a mandate to invest in Pakistan. Compared with neighboring India, however, Pakistan has a virtually virgin private-equity market. In Karachi, the benchmark KSE-100 stock index rallied 47% in 2007 through Dec. 27, making it one of the best-performing emerging markets and nearly matching the gains of India's Sensex index. In comparison, Indonesian shares gained 52% and Brazil 40% in 2007. "I could understand why a lot of foreign investors are a little spooked by what is happeni

Saiyed Atiq Raza, prominent Silicon Valley Pakistani-American and venture investor, agreed to pay $3m in fine to settle SEC charges of insider trading, according to the US Securities and Exchange Commission. The charges against Saiyed Atiq Raza, 58 years old, a former president and chief operating officer of chip maker Advanced Micro Devices Inc., stemmed from trades he made in 2006 while serving as a director of San Francisco orthodontic device maker OrthoClear Holdings Inc. Under the terms of the agreement, Mr. Raza was also barred from serving as an officer or director of a public company for five years, and he was permanently enjoined from future violations of the federal securities laws. The SEC alleged that Mr. Raza in September 2006 was informed by OrthoClear's chief executive Zia Chishti that the company had agreed to cease competing with rival Align Technology Inc., of Santa Clara, Calif. The agreement, which effectively put OrthoClear out of business, followed a long-runn

"Judge economic performance, the welfare of people and political stability," President Musharraf told business and political leaders at the World Economic Forum in Switzerland. "Please don't judge (us) on maybe unrealistic Western perceptions of democracy and human rights." According to Reuters, he went on say, "The elections must be free, fair and transparent. And I've added another word -- peaceful, we will make sure that they are peaceful." President Musharraf, Bangladeshi Prime Minister Fakhruddin Ahmed, Iraq's Deputy Prime Minister Barham Salih and Afghanistan's President Hamid Karzai together appeared at a panel discussion in Davos Thursday to discuss 'The Quest for Peace and Stability.' Earlier, Mr. Musharraf met with US Secretary of State Condoleeza Rice on the sidelines at Davos. After this meeting, Rice praised him as a steadfast ally in the war on terror whose country would continue to receive substantial U.S. support. Bu

The European Union is Pakistan's largest trading partner, with annual trade worth $9bn. With this backdrop, it makes sense for President Musharraf to visit Europe on what is described by some as a "charm offensive". In spite of all the turmoil and recent bad news, Pakistani economy continues to be the bright spot often ignored by the media. This European visit is intended to get attention to Pakistan's economic performance and to attract European investment to help keep the economy on track for continued growth of 7-8% per year. In addition to meeting the political leadership in Europe, Mr. Musharraf has talked with the media and the business and investor community to reassure of them of progress on various fronts, including the restoration of democracy, the war on terror, and economic growth. On the political front, he reassured them the elections would be held on the scheduled date and would usher political stability in the country. He further said that nobody would

As the world stock markets plunged dramatically on fears of US recession dragging down the world economy, the stock prices in Karachi did well on Tue, the 22nd of January, 2008. While shares on Mumbai, Shanghai, Tokyo and other world stock markets lost 5% or more of their value, the KSE-100 lost only 24 points to close at 13,850 points and KSE-30 gained 18 points closing at 16,505. This remarkable resilience at KSE is a testament to the investor confidence that Pakistani economy has great potential offering very good companies at significant discount to valuations of similar companies elsewhere. Various analysts estimate that, in spite of 40 percent increase in 2007, Pakistani shares still sell for about half the P/E ratios of shares in India and China. Following the decision by the US Federal Reserve to cut interest rate by an unexpected 0.75%, it is likely that the world markets will stabilize shortly. However, the Asian markets have become extremely expensive with Pakistan's KSE

Telecom sector is attracting the largest share of foreign direct investment in Pakistan. Foreign investors pumped in $364m into it during July-Sept 2007 quarter, according to the latest figures released by Pakistan Telecommunications Authority. The total FDI in Pakistan for this 3-month period was $962.5m. The number of cellular subscribers in Pakistan has crossed 76m in Dec, 2007, from 500,000 in 2004. According to Business Recorder, Pakistan's financial daily, most forecasters believe that the upward trend will continue in the next 5 years because of the huge market potential, particularly in the rural areas where the build-out has yet to happen. Opreators such as Wateen (with Motorola) are planning a large Wimax roll-out to improve voice and high bandwidth data access across the country. The biggest mobile operators in Pakistan include Mobilink with 30m subscribers, Ufone with 16m, Telenor with 14m, Warid with 13m and Paktel with 1m. It must be noted that FDI is different from s

Overseas Pakistanis sent home over $3B during July-December 2007 period. This is up 19.4% over the same period last year, according to a report in Business Recorder, Pakistan's financial daily newspaper. The biggest inflows came from the US with $874m followed by Saudi Arabia with $563m, UAE with $500m, GCC countries with $457m, UK with $227m and EU with $89m. The remittances to Pakistan are rising at twice the overall rate of remittances from developed to developing countries. These remittances also compare favorably with the foreign direct investment of $1.87B in Pakistan in the first half of 2007 which increased by 67% over the same period in 2006. In addition to these inflows, Pakistan earns about $18B a year through exports and receives another $750m annually in US aid. While good economic policies by Pakistani government have inspired confidence among investors and the business community, these additional inflows have clearly helped in achieving about 7% annual growth with ri

"Pakistan is a safe haven for investors", says Mark Matthews, chief Asia strategist at Merrill Lynch, speaking to CNBC's Arnold Gay in January, 2008. This is in sharp contrast to some of the rating agencies like S&P and Moody's hinting at possible downgrade of Pakistan as an investment opportunity. Matthews argues that Pakistan is one of the best information arbitrage markets in the world. While the bombings, shootings and the body bags make good headlines for the news media, Matthews says it is incorrect to say that Pakistan is being radicalized. There is always a radical fringe in Pakistan like many other countries. Matthews is "very bullish on Pakistan". He points out that Karachi Stock Exchange KSE-100 index rose 45% and Pakistan's GDP grew by 7% in 2007 in spite of continuing political instability and a continuous stream of news of violence and mayhem on the streets. Pakistan has some of the best companies in the world with stock valuations abou

Amid all the hoopla surrounding the 60th anniversary of Indian independence, almost nothing has been heard from Pakistan, which turns 60 today. Nothing, that is, if you discount the low rumble of suicide bombings, the noise of automatic weapons storming the Red Mosque and the creak of slowly collapsing dictatorships. In the world's media, never has the contrast between the two countries appeared so stark: one is widely perceived as the next great superpower; the other written off as a failed state, a world center of Islamic radicalism, the hiding place of Osama bin Laden and the only US ally that Washington appears ready to bomb. On the ground, of course, the reality is different and first-time visitors to Pakistan are almost always surprised by the country's visible prosperity. There is far less poverty on show in Pakistan than in India, fewer beggars, and much less desperation. In many ways the infrastructure of Pakistan is much more advanced: there are better roads and airpo

The political instability has further increased foreign investors’ perceived risk in Pakistan, even as many held back on spending plans as they awaited the outcome of parliamentary elections originally scheduled for January 8 and now postponed following the assassination. A range of concerns already included security and law and order worries, even as the country's economy was growing at a fast pace over the past five years under President Musharraf's liberal economic policies. Foreign direct investment (FDI) has increased to $3.8 billion from a mere $500 million and according to Pakistan’s central bank rose 67% to $1.87 billion in the first half of the 2006-07 fiscal year, led by inflows into the communications, energy, and banking and financial services sectors. During the period, the banking and financial services sector attracted foreign investment of $517 million, followed by the communications sector with $495 million and oil and gas exploration with $315 million. The str

Rising Atta Prices The rising prices and acute shortages of atta (wheat flour), a staple in Pakistan, are clearly distressing to the people. However, putting it in perspective, this wheat crisis is not isolated to Pakistan. There are widespread fears of food shortages and lack of affordability in many countries around the world. According to a recent report in Wall Street Journal, the prices of Illinois corn and soybeans rose 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more. And a growing number of economists and agribusiness executives think the run-ups could last as long as a decade, raising the cost of all kinds of food. World Wheat Stock At 26-Year Low Global Demand is leaving end-of-year grain inventories at levels that are less than 20% of the total amount used each year; a graph of stocks as a percentage of use is as follows: Source: US Dept of Agriculture No More Cheap Grain "The days of cheap grain are gone," says Dan Basse, president of AgR

Human civilization's fascination with gold goes as far back as the Sumerians of Mesopotamia (Modern day Iran and Iraq) where gold was first discovered in the third millennium B.C. While the reasons for accumulating gold have been changing over time, the fascination continues unabated. The gold price is surging again. This week it set a new record of about $890 per troy ounce, well ahead of the previous all-time record of $850 an ounce set in 1980. A troy ounce is about 31.1 grams and a tola is 11.7 grams. Some analysts argue that, even at the nominal price of $890 an ounce today, it remains far below the inflation-adjusted high of about $2200 an ounce, based on the current equivalent of the 1980 dollars. There are many factors driving the price of gold in recent times. Among others, the slowing sale of gold reserves by the European central banks and the declining production and falling dollar have been the most cited reasons. However, the one factor that I believe is the most sign