Top International Fund Manager Finds Pakistan Attractive
The 73-year-old fund manager, who oversees $33 billion spread across 35 Franklin Templeton funds, has been scouting for investment opportunities in unlikely places, including Pakistan, for over 30 years.
Mobius explains that for "our (Franklin Templeton's) Asia growth funds, we have been buying Pakistan Telecom, MCB Bank, and Indus Motor, which is a Toyota (TM) assembler and distributor". All three of these companies are listed on Karachi Stock Exchange.
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, in addition to Franklin Templeton Funds, there are at least two other 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 capital appreciation. The fund normally invests at least 80% of net assets in equity securities of companies in India and surrounding countries of the Indian subcontinent. At least 50% of total assets will be invested in equity securities of Indian companies, and no more than 5% of total assets will be invested in companies located in countries other than India, Pakistan or Sri Lanka. The fund invests in companies with a broad range of market capitalizations, including smaller companies.
Matthews Asia Funds has Matthews Asia Pacific Equity Income Fund (MAPIX) which describes its geographic focus as follows: The Asia Pacific Region, which includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
In spite of the daily mayhem, continuing political instability, and ongoing counterinsurgency operations in the country, foreign portfolio investors have pushed Karachi's KSE-100 up by 57.8% in rupee terms and 48% in US dollar terms in 2009. Pakistan's Karachi stock market is among the best Asian performers in 2009, along with Shanghai and Mumbai.
Currently, Pakistan has a serious housing crisis and needs about 7 million additional housing units now, according to the data presented at the World Bank Regional Conference on Housing last year.
According to BMI research, the country’s real estate sector continues to be dominated by the two major issues of a chronic shortage of housing against a backdrop of rapid urbanization and rising population and the impact of security factors on the risk appetite of investors and developers.
The first of these factors remains as intractable as ever, with the most recent estimates identifying shortfall of 7.9mn houses. By contrast, the current government is committed to building just 1 million houses. Other estimates paint a similar picture with the Punjab province, with a population of 82 million, said to be facing a shortage of 5 million houses. By some accounts, nationally there is an incremental demand for 700,000 units a year against the annual construction of just 150,000 units.
As to the second factor, the major projects currently moving forward are being executed by risk-tolerant developers from regions such as the Gulf Cooperation Council(GCC) and government or government-linked landowners in Pakistan. This has significantly reduced the scope to provide housing at the level required to supply the backlog. Recently, however, there are reports that Malaysian developers are coming to Pakistan, according to Malaysian news agency Bernama in August 2009. The Malaysian developers are negotiating to build some 500,000 low-cost houses annually in various parts of Pakistan.
The recent Dubai debt crisis will likely hurt some Pakistani workers in the Gulf region. However, the flip side of Dubai troubles is that many of these Gulf developers will look at Pakistan where real estate investments have always been winners, regardless of the political or economic environment. The supply has continued to lag demand for housing, retail and office properties.
The Gulf and Malaysian investments in housing can potentially help resuscitate Pakistan's currently moribund economy by creating millions of new jobs directly and indirectly. Construction is one of the most labor intensive economic activity requiring large numbers of workers, creating hundreds of thousands of jobs. And when the buyers move in, they will demand all kinds of products and services to furnish their homes, thereby creating further employment opportunities. All of this is offers a great recipe for reigniting economic growth and renewed prosperity in Pakistan.
A new wave of housing construction offers an opportunity to the PPP leadership to live up to at least one of their election promises included in their "roti, kapda and makaan" platform. Looking back at the history of the political platforms that have succeeded, what comes to mind is the name of President Franklin Roosevelt and his "New Deal" , as well as the successive US Presidents' policies on "The American Dream" of home ownership for all. These policies helped reduce poverty and enhanced education and housing for a large number of people in the US. New housing construction can also help reduce poverty in Pakistan.
According to BMI research, Pakistan has experienced a high level of activity in its infrastructure sector in 2008. This has mostly been focused on the power sector and the road network. In addition, construction of housing has been a top priority. However, the global downturn is hitting Pakistan hard, and the BMI's 2009 Annual Infrastructure Report for Pakistan is forecasting the construction industry to contract by 6.31% y-o-y in 2009. The power sector has been the major focus in Pakistan's infrastructure sector in 2008. Years of underinvestment in electricity generating and distributing infrastructure came to a head in 2008, when there was not enough supply to meet demand, further exacerbated by lack of rainfall almost knocking out Pakistan's large hydropower sector. It is currently estimated that there is a 3,300MW shortfall in capacity at peak hours; as a result, load shedding has been a common practice. In an attempt to combat the shortages, a US$30bn investment plan has been announced, which has seen the development of a number of projects. Construction started in 2008 on the 969MW Neelum-Jhelum power plant, which is being built by a consortium comprising Chinese Gezhouba Group Company and China Machinery Export Corporation. Construction of the Diamer Basha Dam, which will have a capacity of 4,500MW once completed, is expected to start in 2009. Within the transport sector, the roads have benefited from the majority of attention in 2008. This has been the result of the National Highways Authority's plans to invest US$5.36bn into the sector. The plans benefited from a US$900mn multi-tranche loan from the Asian Development Bank. The main project being pursued is the National Trade Corridor, envisaged as a main thoroughfare connecting the north of the country to the ports in the south; it is estimated to cost US$6.58bn. Construction of housing has been a major feature in 2008. Residential construction is being carried out under the prime minister's 'mega housing scheme' which involves the construction of one million low cost houses per year. Pakistan's economy has been hit hard by the global economic downturn and BMI's is forecasting real GDP growth of 2.5% y-o-y in 2009, down from 6.8% in 2007. In November 2008, the country received a US$7.6bn 23-month standby loan from the International Monetary Fund to "support the country's economic stabilization program". The move might help boost investor confidence in the short term; however, it may put off investors looking at long-term infrastructure investments.
The 2008 World Bank assessment says that Pakistan is one of the most water stressed countries in the world, and water resources are depleting rapidly. With its water infrastructure in poor condition, the report argues that Pakistan has to invest around Rs60 billion (US$1 billion) per year in reservoirs and related infrastructure over the next five years. In the energy sector, the country will face severe power shortages of around 6,000 megawatts by 2010. Similarly, inefficiencies in the transport sector cost the economy between 4-5 percent of GDP each year.
To overcome these constraints, the Government of Pakistan is tripling its annual infrastructure investment from an average of Rs150 billion (US$2.5 billion) to Rs440 billion (US$7.3 billion). However, the bank report points out that mega projects in the past have experienced frequent delays and cost overruns, illustrating a lack of capacity in the industry to plan, program, and execute large projects.
Many infrastructure projects in Pakistan, including power plants and motorways, are being built and financed on build-operate-transfer or BOT basis. Built on the BOT basis, some of the motorways have already paid for themselves and now generate revenue for Pakistan government and contribute to GDP.
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