South Asia Investor Review

Pakistan's Karachi Stock Exchange has been one of hottest stock markets in the world. Backed by strong economic expansion and double digit profit and revenue growths in the major private sector companies, the KSE-100 rose 44% last year. Pakistan has been designated among the "Next-11" emerging economies by Goldman Sachs and called a "safe haven" for investors by Merrill Lynch Asia Chief Strategist Mark Matthews. There is considerable interest by individual US investors looking for opportunities to invest in Pakistan stocks. Unfortunately, there are no pure-play mutual funds investing exclusively in Pakistan. However, there are at least two companies specializing in Asian economies that invest part of the portfolio in Pakistan along with India, Sri Lanka and other countries in Asia. These companies are Matthews Funds and Eaton Vance Funds. Eaton Vance has Eaton Vance Greater India A Fund(ETGIX) that describes itself as follows: The investment seeks long-term capi

Wheat Price Touches $900 Per Ton Triggered by wheat export curbs by Kazakhstan and the lowest world inventory in 26 years, wheat price hit a new record at $25 per bushel or about $900 per ton. This translates into Pakistan Rs. 55 per kilo for raw wheat in bulk excluding transportation, milling and bagging. It represents a 400% increase in less than a year. According to the U.S. Department of Agriculture's Foreign Agricultural Service, Kazakhstan is the sixth-largest exporter of wheat, behind the U.S., Canada, Russia, Argentina and the European Union. Kazakhstan is in the belt of wheat production that stretches from Ukraine through southern Russia. It already has exported nearly seven million tons of grain, of the available 10 million tons from the 2007-08 crop, Agriculture Minister Akhmetzhan Esimov said. Price Doubled Since Dec, 2007 In my January 15, 2008 blog post Wheat Flour Shortage in Pakistan , I wrote as follows: " Former Prime Minister Shaukat Aziz announced in Sept,

Pakistan is responsible for almost total blackout of YouTube, the popular video site, around the world. The BBC is reporting that the hour-long global outage was almost certainly connected to Pakistan Telecom and Asian internet service provider PCCW. The BBC News website's technology editor, Darren Waters, says that to block Pakistan's citizens from accessing YouTube it is believed Pakistan Telecom "hijacked" the web server address of the popular video site. In the last couple of days, the Pakistan Telecom Authority was being attacked by the bloggers and others in Pakistan for attempting to block anti-government video content. Some believed it had to with alleged "election rigging" by MQM. In fact, the motivation was to block access to material deemed offensive to Muslims. It is thought that, unlike the filters in China and Saudi Arabia, Pakistani filters lack the ability to stop content selectively and block the entire domains instead. A leading net profes

The KSE-100 closed at an all-time high of 14829.58, continuing the bullish trend after February 18 elections. The buying was spurred by hopes raised by the announcement of PPP and PML(N) agreeing on forming a coalition government. According to Pakistan's Financial Daily "Business Recorder", the overall market capitalization reached an all time high of Rs 4.606 trillion with a net increase of Rs 41 billion. Healthy trading activity was seen at the share market as the market volume significantly increased to 397.695 million shares as compared to 359.151 million shares traded a day earlier. The futures market turnover however slightly declined to 51.615 million shares against 56.592 million shares previously. The rally witnessed strong institutional buying coupled with foreign buying. The strong earnings announcements brought buyers in the share market. The investors' expectations for better political situation in days ahead encouraged them to take fresh positions. There

There are an estimated 270,000 illegal Indian immigrants in the United States, according to 2006 figures from the US Department of Homeland Security . With 125% percent increase from 2000 to 2006, India represents the fastest growing source of illegal immigrants to the United States, reports San Jose Mercury News, a major Silicon Valley newspaper. In absolute numbers, Central and South American nations account for the bulk of the estimated 11.5 million illegals, with India a distant second with 270,000 in 2006. The vast majority of the estimated 2.5m Indians in the United States are legal immigrants with about a half of them with citizenship status. Highly educated with many in professionals such as doctors and engineers, Indians are a very affluent ethnic group whose median household income is 62% higher than the national average. The top three geographies with the highest concentrations of Indians in the US are San Francisco Bay Area at number 1, New York/New Jersey/Connecticut area

The KSE-100 rose 443 points to close at 14,797, an increase of about 3% after peaceful polls seen as largely free, fair and transparent. People of Pakistan have spoken and handed a resounding defeat to the ruling coalition. The results of Pakistan Elections 2008 indicate that President Pervez Musharraf has delivered on his promise of free, fair and peaceful polls. Sen Tariq Azim and Mr. Shujaat Chaudhry of PML(Q) have both graciously accepted the outcome and indicated their readiness to sit in the Opposition. Musharraf has indicated he is ready to work with the winners. These are history making events for Pakistan. Another important development is the lackluster performance of religious parties in sharp contrast to the 2002 election held in the aftermath of the US bombing in Afghanistan. There is clearly "Mullah Fatigue" in the NWFP which was until recently ruled by the MMA, the religious party alliance. This vote should set to rest any fears of pro-Taleban, Pro- Al-Qaeda re

The ongoing rapid economic growth in the BRIC (Brazil, Russia, India and China) countries and emerging economies such as Pakistan has dramatically increased demand for food, oil and metals driving up prices. Here are some of the recent headlines that I find particularly notable: 1. It costs the US Mint two pennies worth of metal to make one penny. 2. One Indian rupee coin is worth Rs. 35 when melted and turned into razor blades. 3. Gold and oil prices hit new highs in the world market in 2007. 4. The price of wheat has nearly doubled from about $200 per ton to $400 per ton in just a few months. The current worldwide commodity boom began with the genuine increase in demand from the fast growth in emerging economies of the world. However, at least part of some of the recent increases appear to be driven by speculation in the commodities markets with many hedge funds and big investors trying to make a fast buck. One of the downsides of such speculation is that it may fuel worldwide infla

Stock Investors Bullish As the world holds its breath for the February 18 voting in Pakistan, the stocks continue to surge with major Pakistani companies posting record profits. The KSE-100 rose for the fourth day closing up 70 points at 14,353. Pakistan State Oil Company Limited, the largest state owned oil marketing company in the country has achieved a record profit before tax of Rs 8.2 billion and profit after tax of Rs 5.5 billion in the first half of financial year 2007-08 with 13% increase in sales volume. Shares buyback by a number of listed companies including Ahmad Spinning Mills, Sarhad Cigarettes and Noon Textiles inspires confidence that the share prices are likely to continue the uptrend. External Debt Rises Pakistan's external debt rose by US$2.4b to reach a new high of US$42.9 during July-Dec 2007. As a percentage of GDP, however, it declined to 26% from 27% at the end of FY2007 ending June 2007. The total debt-to-GDP ratio is 57%, helping Pakistan maintain its Mood

In addition to the performance of BSE-30 index, there are two recent reports that seem to suggest that Indian and foreign investors are starting to worry about the bubble in Bombay. The first report indicated that Reliance Power IPO did not meet expectations. While the issue price was Rs. 450, it opened at Rs. 530 but declined soon after closing at Rs.372. The second report said Emaar, the Dubai-based real estate giant, has decided to delay its Indian IPO. With the impressive growth in the Indian economy and very healthy returns in the stock market for several years, a lot of investors have flocked to Bombay to profit from Indian stocks. This phenomenon has pushed the P/E ratios of Indian shares to new heights. According to the Bombay Stock Exchange which computes PE for its dozen odd sectoral indices, the average PE of BSE Realty Index was as high as 71.55 as on January 4, while the average PE ratio for BSE Capital Goods was second highest at 51.20. The BSE Power Index PE ratio was a

Pakistan's Aziz: "I Have No Doubt." Robyn Meredith 02.11.08 Forbes Asia Musharraf's premier left quietly amid the tumult. Here he says his economic reforms, and nation, will abide. Fresh from the trauma of opposition leader Benazir Bhutto's assassination, Pakistan is scheduled to hold parliamentary elections Feb. 18. Predictions of the outcome range from not good to worse. Some Asia experts worry that if unpopular President Pervez Musharraf were to engage in transparent vote-rigging efforts, riots would result. In the event of chaos, the army might take charge and remove Musharraf from power. The politics are complex on the surface and even more complex behind the scenes. If elections go off on schedule, look for a divided parliament, with a coalition government likely led by Bhutto's Pakistan People's Party, which would then name the prime minister. "I see a prolonged difficult future in a country that is quite messy," said South Asia expert Ric

With the personal computers and the Internet penetration in Pakistan in single digit percentages and the mobile phone penetration approaching 50%, should Pakistanis still aspire primarily for the Western style PC/Internet access model? The answer to this question is clearly a resounding NO. Here is an opportunity for a strategic leapfrog to ubiquitous Internet connectivity via the most prevalent device owned by the largest number of people--the mobile phone. It makes sense from many perspectives: Device cost, connectivity options, electricity availability, usefulness for the vast majority of people, etc. It seems that the Japanese have already been pursuing the mobile connectivity model with widespread voice and data connectivity through the cell phones, popularity of text messaging, use of cell phone as a gaming/entertainment and payment platform. While the efforts such as OLPC (One laptop per child) for developing nations including Pakistan are laudable, a similar or even greater fo

A number of Pakistani economists and newspaper columnists are fretting about what they call "Pakistan's Debt Crisis". They claim that Pakistan's national debt has risen dramatically over the last 8 year. Putting in perspective, it seems to me that they are raising an unnecessary alarm. While it is true that Pakistan's total external debt has increased by about 10% since 1999, it is also true that Pakistan's GDP has more than doubled. Here are the facts: In 1999 Pakistan’s total debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4% respectively in 1998). Most recent figures in 2007

The Tribal Elders' Role During the British rule of undivided India, the tribal elders in the Federally Administered Tribal Areas (FATA) of Pakistan made deals with the British government that were generally adhered to and kept the peace in the autonomous tribal region. This system continued after Pakistan's independence for several decades. However, as the madrassahs proliferated in Pakistan's tribal areas since the early 1980s, there seems to be a new dynamic affecting the traditional role and influence of the FATA elders. The radical young graduates of these madrassahs are not willing to accept the traditional role of the elders and their decisions in all matters. There have been many instances of tensions reported between the local tribal elders and the Taleban on both sides of the Pakistan-Afghan border. In December 2007, AP reported that suspected Islamic militants fatally shot eight tribal leaders involved in efforts to broker a cease-fire between security forces and

The recent political turmoil with Bhutto's return and her tragic assassination in Oct-Dec 2005 period is taking its toll on Pakistan's economy. Weaker textile exports, rising food prices, and ongoing energy crisis have caused the government to scale down its growth target for the fiscal year ending June 2008. Immediately after Benazir Bhutto's death on Dec. 27, rioters from her native Sind province caused an estimated $1.3 billion in losses, according to Karachi's Chamber of Commerce. Power transmission, telecommunications and roads were affected. Among the recent issues exacerbating the larger energy crisis, the two main power transmission lines were blown up in January 2008 in Sind, creating a shortfall of 1,000 MW. The business community complained that lopsided and unplanned shutdowns resulted in closures in almost all industries. Many factories in Karachi, the heaving commercial hub -- including some owned by Colgate-Palmolive Co. and Philip Morris International I

Pakistan ended 2007 with the assassination of opposition leader Benazir Bhutto on Dec. 27. Though it is not clear who ultimately ordered the assassination or what they hoped to achieve, the result injected a huge amount of passion and uncertainty into a situation that already stretched the definition of “chaotic.” In 2008 Strategic Forecasting Inc. (Stratfor) expects the Pakistani army — which is to say, the Pakistani state — to hold together, but just. Political power within the army and governing institutions has become more diffuse as President Pervez Musharraf’s grip has slackened, and Bhutto’s assassination has upended many agreements to share power. With those deals up in the air, Pakistan’s many factions — within and beyond the military — are now competing with each other with few established points of reference. Yet most of this is simply the sound and fury of internal maneuvering; ultimately, military commanders know that they are the true rulers of Pakistan no matter what ele

While many analysts, CEOs, and investors remain bullish on Pakistan's economy, here's a contrarian view by Lee Hudson Teslik on the dangers ahead for Pakistan: Pakistan has become a land of what-ifs. Analysts speculate on a wide range of fallout scenarios for the country: suppose President Pervez Musharraf’s regime falls; or Musharraf’s crackdowns disillusion moderate Pakistanis and embolden Islamist extremists; or the country’s nuclear weapons aren’t as secure as official assurances suggest. On the economic front, there’s no need for guesswork—Pakistan’s turmoil has already pinched the country’s economy, stoking inflation and prompting concerns among regional trading partners. Voice of America (VOA), the U.S.-funded broadcast network, reports on a worsening of endemic economic problems in the country following the assassination of opposition leader Benazir Bhutto in late December. Pakistan’s central bank lowered its growth forecasts (Reuters) for 2007/2008 in early January, bu

On January 31 2008, Emmar Chairman Mohamed Alabbar told Erin Burnett of CNBC that a major project in Karachi sold out within hours of its being offered for sale. The project he was referring to is Emaar's Crescent Bay Project in Karachi. Crescent Bay was launched on May 31, 2006 as part of a US$2.4 billion investment in Pakistan by Emaar. According to Emaar, Crescent Bay is a 75-acre development featuring high- and mid-rise towers for residential and commercial use, a shopping centre and five-star beachfront hotel. The towers will contain approximately 4,000 residential apartments. Crescent Bay is located within Karachi’s DHA Phase 8 and in close proximity to the DHA golf course. Below is an artist's rendering of the completed project: A friend of mine in Karachi reported via email as follows: "The first phase was overbooked in less than an hour of opening of the counter. Then there was balloting. Those who one were given a piece of paper. That piece of paper is already 10

Super Bowl XLII As New England Patriots meet New York Giants for Super Bowl XLII tomorrow, there is the usual annual excitement among the football fans planning for Super Bowl parties around the country. In addition to being a great sporting event, Super Bowl has also become a gigantic commercial extravaganza for a whole range of businesses. For example, the media are the big beneficiaries of the multi-million dollar TV commercials by major consumer product giants. The consumer electronics stores sell a lot of large-screen high-definition TV sets and home theater systems. And the grocery giants attract a lot of spending just for this event. That's not all, even the furniture stores benefit from major furniture sales just prior to the event. In short, this event by itself creates a significant stimulus to the economy on an annual basis. TV Sales Last year, US retailers sold 61 percent more TVs the week before the Super Bowl compared with the previous week, according to NPD group in