Pakistan ETF PAK Trading On New York Stock Exchange

A new country Exchange Traded Fund (symbol PAK) started trading on New York Stock Exchange (NYSE) this week. The ETF will track the price and yield performance of the MSCI (Morgan Stanley Composite Index) All Pakistan Select 25/50 Index.

Pakistan ETF: 

The new Pakistan ETF launch coincided with Chinese President Xi Jinping's visit to Pakistan where he announced massive $46 billion investment in Pakistan's energy and infrastructure. The sectors expected to benefit most initially from the Chinese investment are: energy, cement and financial services.

Pakistan Outperforms Emerging, Frontier Markets Source: Economist

Although the ETF launch timing was fortuitous, it was actually planned well before the Chinese leader's visit. It caters to individual investors seeking outsize returns in Karachi where KSE-100 index has been outperforming both emerging and frontier markets for several years.

Pakistan GDP, CAD Source: Economist

In 2014, the KSE-100 Index gained 6,870 points thereby generating a handsome return of 27% (31% return in US$ terms), making Pakistan's KSE world's third best performing marketTotal offerings in the year 2014 reached 9 as compared to 3 in the year 2013. After a gap of seven years, Rs 73 billion were raised through offerings in 2014 as compared to a meager Rs 4 billion raised in 2013. Foreign investors, that hold US$ 6.1 billion worth of Pakistani shares -which is 33% of the free-float (9% of market capitalization)-remained net buyers in 2014.

The ETF fact sheet shows that the index has 31 holdings in it. Also, the industry weightings are concentrated in financials (32.7%), energy (24.2%), materials (23%) and utilities (10.8%) — roughly 90% in four sectors alone.

The top equity holdings with weightings in the ETF are as follows: MCB Bank, 11.5% Oil and Gas Development (OGDC), 9.8% United Bank, 6.1% Fauji Fertilizer, 5.9% Lucky Cement, 5.7% Hub-Power, 4.9% Pakistan State Oil, 4.8% Engro, 4.7% Bank Al-Habib, 4.1% National Bank Pakistan, 3.7%

Pakistani Shares Valuation:

Even after outperforming both emerging and frontier market indices, Pakistani shares can be bought at deep discounts which make them very attractive, according to Renaissance Capital’s chief economist Charles Robertson.  MSCI (Morgan Stanley Composite Index) Pakistan trades at only 8.4 times forward earnings, a 17% discount to MSCI Frontier Markets. For comparison purposes, fellow frontier south Asia markets Sri Lanka and Bangladesh trade at 13.4x and 21.4x respectively. India, included in the emerging market index, trades at 16.8 times.

Key Sectors: 

Chinese investment in energy and infrastructure will help stimulate all sectors of Pakistani economy. But the sectors benefiting most from the $46 billion investment will likely include banks, energy and building materials, the sectors which are the favorites of  Pakistani billionaire investor Mian Mohammad Mansha.

Being close to the ruling Sharif family makes Mansha the ultimate insider. Beyond his investments in banking, cement, energy and textiles, Mansha is also starting to invest in consumer products sector benefiting from rising incomes, growing middle class and increasing jobs created in Pakistan by the massive Chinese investment. Mansha owns a big chunk of Muslim Commercial Bank (MCB) shares. He has recently been pumping more money into energy, cement and dairy businesses. Mansha's DG Khan Cements has announced plans to build a $300 million cement plant near Karachi. In additions, his Nishat Dairies has imported thousands of dairy cows for a dairy farm in Lahore.


The $46 billion Chinese investment in energy and infrastructure has brought attention to tremendous investment opportunities in Pakistan, a nation of nearly 200 million people with rising middle class and growing consumption.  Pakistani military's recent successes against the terrorists and China's massive investment commitments are expected to boost investor confidence in the country. Higher confidence will help draw other significant investors to invest in Pakistan over the next several years.

Full Disclosure: I have personally invested in PAK ETF.


Riaz Haq said…
In his first state visit to Pakistan last week, China’s President Xi Jinping pledged $46 billion to build a 3,000-kilometer (1,860-mile) economic corridor linking China’s restive west to Pakistan’s southwest port on the Arabian Sea. It is by far Beijing’s biggest bet on another developing country.

Earlier this month, Pakistan raised $1 billion from the sale of a big stake in its largest commercial bank, Habib Bank (ticker: HBL.Pakistan). Demand was overwhelming, and three-quarters of the shares went to foreigners, mostly long-term institutional investors.

We associate Pakistan with terrorism and sectarian violence. But China’s leaders are practical and business-minded: Are we missing something?

In many ways, Pakistan’s prospects look brighter today than they have in a long time; in fact they’re similar to those of its bitter rival, India. Growth has ticked up, from 3.7% in 2013 to 4.1% last year. Like India, Pakistan recently got nods of approval from the International Monetary Fund and Moody’s, with the former lifting its GDP forecast to 4.3% this year and 4.7% next, and the latter raising Pakistan’s credit outlook to positive from stable. Pakistan almost halved its budget deficit to 4.7% of GDP last year, and is now targeting 4%.

Lower oil prices also help Pakistan. Inflation hit a new low of 2.5% in March, down from 8.5% a year earlier. In March, Pakistan’s central bank cut its key interest rate to 8%, with another reduction possible.

The major concern is, of course, security. While falling, the number of civilian fatalities from terrorist attacks still totaled 1,781 last year. That was a seven-year low. So far this year, there are 352 fatalities.

INVESTORS WILL USUALLY PAY a premium for structural reform. On this count, “Pakistan ticks many of the boxes” but is not getting the love, says Renaissance Capital’s chief economist, Charles Robertson. It trades at only 8.4 times forward earnings, whereas investors’ darling India fetches 16.8 times.

Much of the shortfall is Pakistan’s fault. During the financial crisis in 2008, Pakistan suspended stock trading, only to see a sharp selloff upon re-opening. The episode prompted indexer MSCI to downgrade the country from emerging to frontier market. If operating normally, the Karachi Stock Exchange, with a market valuation above $70 billion, and $140 million in daily trading volume, would qualify as an emerging market. Over 25 stocks generate more than $1 million in daily trades.

Stocks have done very well since the shutdown. They’ve risen an annualized 26% over five years. Last week, Global X launched the first U.S.-listed Pakistani exchange-traded fund, Global X MSCI Pakistan, under the ticker PAK.

Pakistani cement makers, beneficiaries of infrastructure spending, are a good bet, says Asha Mehta, frontier markets portfolio manager at Acadian Asset Management. Pioneer Cement (PIOC.Pakistan), for example, expanded its operating margin from 27% in 2012 to 34% in 2014 and trades at only 7.7 times earnings.

Pakistan isn’t for the faint-hearted. In March, its market fell 10% in five days because of one investor: Miami-based Everest Capital unloaded around $70 million to cover a bad bet on the Swiss franc, and local sell orders ballooned from resulting margin calls and panic. Though Pakistan’s stock market recovered, it’s unlikely that such an event could occur in India’s bigger, more mature market.
Riaz Haq said…
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.

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.
Riaz Haq said…
Standard & Poor’s raised Pakistan’s credit rating outlook to positive from stable, as lower energy costs and an IMF loan boost growth and improve finances.

“The positive outlook reflects our expectations of Pakistan’s improved economic growth prospects, fiscal and external performance, and the supportive relationship of external donors over the next 12 months,” the company said in a statement on Tuesday.
It affirmed its B- rating, which is among the so-called junk grades, and raised the 2015-2017 average growth projection to 4.6 percent from 3.8 percent. Risks include higher oil prices, weakness in key trading partners and violence, S&P said.
The move follows a similar step by Moody’s Investors Service in March as Prime Minister Nawaz Sharif looks to resolve Pakistan’s crippling power shortages and boost investment. The nation’s foreign exchange reserves have almost doubled to $12.6 billion with the help of an International Monetary Fund loan and its stocks are among Asia’s best performers this quarter.
“Foreign inflows can be expected in the country and more dollars would mean more economic stability,” Saad Khan, an economist at Arif Habib Ltd. said by phone from Karachi after the upgrade.
The benchmark KSE100 index has risen 10.7 percent this quarter, trailing only Chinese and Hong Kong equities, according to data compiled by Bloomberg. The gauge fell 0.8 percent as of 12:24 p.m. in Karachi on Tuesday and Pakistan’s rupee was little changed.
China Pledge
China pledged $45 billion for roads, ports and power plants when President Xi Jinping visited Pakistan last month. The planned investment, 28 times more than the foreign direct investment Pakistan received in year ended June, will spur investment activity and help ease the country’s growing energy shortage, Moody’s said in a report on Monday.
Pakistan took a $6.6 billion loan from the IMF in 2013 to avert a balance-of-payments crisis and has cleared six program reviews. Oil prices have fallen 38 percent over the past year, lowering Pakistan’s import bill, easing price pressures and giving the central bank room to cut interest rates.
S&P forecasts Pakistan will report an average budget deficit of 3.5 percent of gross domestic product during 2016-2019 with interest costs falling to about 25.5 percent of revenues from an estimated 30.6 percent in 2015. Inflation is expected to average 4.8 percent over 2015-2019.
Riaz Haq said…
“We are now seeing growing stability in the economy,” he (State Bank of Pakistan Governor Wathra) says in an interview with the Financial Times.
The IMF has acknowledged that Pakistan averted a balance of payments crisis in 2013 and managed to stabilise its foreign reserves. This week Standard & Poor’s, the credit rating agency, raised the outlook for its B minus rating from stable to positive, while Moody’s last month raised its outlook to stable from negative — albeit for a Caa1 rating, which puts it one notch above Greece.
With liquid foreign reserves having grown almost fourfold in the past year to $12.5bn, a figure equivalent to about three months of imports, Mr Wathra has less cause for concern about the stability of the rupee than some of his predecessors.
The recent plunge in the price of crude has seen the cost of oil imports fall to $9.7bn in the nine months to March, down from just over $11.2bn a year earlier, according to central bank figures.
Falling oil prices have also helped lower the fiscal deficit to an expected 5 per cent of gross domestic product in the year to June, down from above 8 per cent just over two years ago. And the country’s GDP is forecast to grow by about 4 per cent this year, following a similar rise last year.
But the government’s critics say the recent strong economic performance owes more to luck and a falling oil price than design.


One western economist says that up to 25 per cent of the electricity generated in Pakistan “is lost and unaccounted for in the transmission system. It’s the most visible theft of a valuable resource in Pakistan.”
Other risks remain. Pakistan’s economy is vulnerable to foreign policy — both its own and that of others. Tensions have mounted over the country’s reluctance to provide ground troops, naval assets and fighter jets to Saudi Arabia to join its offensive inYemen.
Some even fear that up to 2m Pakistani expatriate workers in Saudi Arabia could be repatriated — an unlikely but devastating outcome given the billions of dollars of remittances they send home every year.
Even as he welcomes the boost provided by the lower price of oil, Mr Wathra acknowledges the foolhardiness of relying on it to boost the Pakistani economy. “Why,” he asks, “should we rely on a factor which can be unpredictable and not in our control?”
Riaz Haq said…
Contrary to the negative headlines we often see in the press, you get an entirely different perspective on Pakistan when visiting the country.

Over the last few years, there has been a dramatic change in the political landscape. We have had for the first time a government completing a full term, the first time since independence 67 years ago, while the transfer of power to the opposition was also handed peacefully. Importantly, stability within the political landscape has led to a stability of economics and commitment to adhere to an International Monetary Fund programme.
This means we are dealing with a country that is lowering its budget deficit, privatising state-owned assets and starting to tackle energy shortages; all meaningful milestones for international investors.
As part of the IMF program, it has committed to a very aggressive, almost unprecedented privatisation program. In June 2014, Pakistan experienced its first privatisation in seven years, with the sale of 19.8% of United Bank. There are also other major plans for 2015.
Meanwhile, the country is also embarking and prioritising on a massive restructuring and privatisation of its power sector, which is much needed to unleash Pakistan’s economic growth. After slumping to less than 3% from 2007 to 2011, economic growth is steadily rebounding and is estimated at 5.5% this year, but this could be much higher if structural changes continue.
The fall in oil and other commodities is also providing a further tailwind to the economy. This has had a knock-on effect to inflation, with the rate dropping quite sharply in recent months, and is now at an 11-year low.
On the back of lower inflationary pressures, Pakistan's central bank cut its key discount rate to 8.5% in January and a further 50 basis points reduction in March to 8%. Encouragingly, we are expecting more to come if inflation remains anchored at these lower levels.
Positive Demographics and Most Liquid Market
Pakistan’s 186 million population is the largest among frontier markets, and the sixth largest globally – after China, India, US, Indonesia and Brazil. A 9% weight in the MSCI Frontier Markets Index ranks Pakistan third by weight, after Kuwait and Nigeria, making it the largest oil-importing country in the index.
With 560 companies listed, the $77 billion market cap Karachi Stock Exchange trades $150 million daily, giving Pakistan the most liquid equity market among countries in the MSCI Frontier Markets index. The market’s free-float is approximately 33%, with around 35% of the free-float owned by foreigners.
However, along with Sri Lanka, Pakistan stands out among Asian frontier markets as much of the bad news is already embedded in valuations. Recent gains have moved that forward P/E onto 9-times, but this still remains very favourable versus other frontier, emerging and developed markets.
The opportunity set in Asia, as with other frontier markets, is majorly focused on the financials sector. There are many banks trading at high single-digit to low double-digit levels when considering forward looking price-to-earnings ratios.
Many frontier banks are also generating exciting, but also sustainable, return on equity levels. Twenty per cent per-annum growth is not uncommon, especially in Pakistan and Sri Lanka.
In Pakistan, banks had been in a de-leveraging cycle for almost five years up until the summer of 2014. This has reversed sharply and loan growth has now picked up, into double-digits in some cases, as corporates have started to re-leverage. This is now coming through strongly in profits growth.
Overall, Pakistan and other markets in the Asian frontier region are becoming more important to investors. Positive demographics and low credit penetration levels provide a robust backdrop for investing.
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Riaz Haq said…

India is considered by some to be the best emerging market for several reasons and the one to buy.
The favorable environment for India is passing and the new one contains a great deal of headwinds.
India is not a buy in my assessment once you take everything into account.
Of all the emerging markets that are out there, India is one of the more prominent ones. It's one of the BRIC countries, together with Brazil, Russia and China. India easily ranks as one of the more popular investment destinations among emerging markets. In fact, there are a large number of people who consider India as their number one pick when it comes to deciding where to invest in emerging markets.

Why some people may want to invest in India

There are many reasons why India is currently a favored destination among some investors. India is an economy with relatively fast growth, at least in comparison to most countries out there. It also has a very large and a fairly young population. India has the potential to one day become a leading economy and a large consumer of all sorts of goods and services. Investing early on could pay off handsomely some day.

Unlike many other emerging markets, India does not depend on the export of commodities. On the contrary, India is a major importer of commodities such as crude oil and gold. The big drop in commodity prices starting in 2014 has therefore not hurt India, in contrast to other emerging markets that have experienced much turmoil due to the drop in prices of commodities.

The year 2014 also saw the election of the Modi government, which is considered by many to be friendly to businesses and open to reform. This factor along with others combined to generate a lot of optimism about the future and India became one of the best performing markets in 2014 as investment capital poured into the country.

The winds are changing direction

However, in a couple of days it will be exactly one year since the new government in India was elected. India will at some point have to turn some of its election promises into action. It cannot rely on being given the benefit of the doubt because its honeymoon period is now pretty much over. The government will be judged on what it's able to accomplish and not just what it says it's going to do.

Unfortunately, some of the early signs are not very promising. For instance, foreign companies and investors are still in the dark concerning potential tax payments that no one was informed of but will still be held liable for. The Indian government has not done enough to resolve this and other outstanding issues. Frankly, the Indian government has little if anything to show for with its one year anniversary coming up.

Furthermore, the price of crude oil has stopped declining. If it continues to rebound, other commodities could follow suit because the price of oil plays an important role when it comes to extracting commodities from the ground. This is a significant development for India because crude oil accounts for about one third of its import bill.

The declining price of crude oil was thought by many to be the reason for optimism because it would allow India to turn its current account deficit into a surplus. This has yet to happen and the rising price of crude oil makes that possibility more and more unlikely. The deficit could actually increase instead of decline as some had forecast.

It's important to remember that India has a number of weak fundamentals. India has a problem with chronic deficits, including a current account deficit, a trade deficit and a budget deficit. The deficits force India into borrowing, which is not a good situation to be in at this moment. Interest rates are looking to go up, which means that India will have to pay more for its borrowing. You do not want to pay more if you're already short on cash.
Riaz Haq said…
The (Pakistan) government accepted on Monday it had missed economic growth target for this fiscal year because of the underperformance of agriculture and industrial sectors.

The economy grew at the rate of 4.24 per cent as against the projected target of 5.1pc for 2014-15. Last year the target was 4.4pc, but the growth rate was 4.03pc.

The matter was discussed in the meeting of the National Accounts Committee (NAC) held on Monday.

Out of 20 key growth indicators, the NAC documents showed only 10 were on target. In March 2015, the Asian Development Bank Outlook projected moderate growth in Pakistan at 4.2pc in FY15 and 4.5pc for FY16.

The ADB attributed the low growth to slow pace of reforms in energy, taxation and public sector enterprises.

The NAC cited minor crops, livestock, fishery, small-scale manufacturing, slaughtering, construction, general government services, finance and insurance as key drivers of growth in 2014-15.

The growth rate, however, is provisional as final numbers for full year will firm up later. The agriculture sector posted growth of 2.88pc against 3.3pc target in 2014-15. Last year the sector grew by 2.69pc. Major crops recorded a paltry growth of 0.28pc against the target of 1.5pc.

The worrisome factor is that yield of some crops posted negative growth. The wheat production was projected at 25.478 million tonnes for this year as against 25.979 million tonnes last year, a decline of 1.93pc.

The sugarcane yield declined by 7.13pc, maize by 5.04pc during this fiscal over the same period last year.

There is fear that low yield of minor crops could lead to higher food inflation. Livestock, the second largest sub-sector of agriculture, posted a growth of 4.12pc against the target of 3.8pc. The fishery sector expanded 5.75pc as against 0.98pc last year. And forestry exhibited a growth of 3.15pc against a negative growth of 6.74pc last year.

The industrial sector posted a growth of 3.62pc against the target of 6.8pc in 2014-15. Last year it grew by 4.45pc. Of these the mining and quarrying sector recorded a growth of 3.84pc against the target of 6.5pc. The manufacturing recorded a growth of 3.17pc down from 4.46pc last year. The projected target was 6.9pc.

The LSM posted a growth of 2.38pc against the target of 7pc, small-scale manufacturing 8.24pc against the target of 8.4pc and slaughtering 3.32pc against the target of 3.6pc.

The growth in construction sector was 7.05pc compared to 7.25pc last year. And supply of electricity, and gas also depicted a growth of 5pc against a negative growth of 26.38pc last year. The services sector grew at 4.95pc in 2014-15. Last year it grew by 4.37pc.

The major contributors were the general government services, which grew by 9.44pc, finance and insurance 6.18pc, housing services 4pc, transport 4.21pc and wholesale and retail trade 3.38pc this fiscal year over the last year.
Riaz Haq said…
Investors snap up #Pakistan's first real-estate investment trust (Dolman City #REIT); Will boost #Karachi real estate

Investors piled into Pakistan’s first real-estate investment trust, which was launched this week with a public offer that was heavily over-subscribed, the REIT’s lead manager and analysts said on Thursday.

The Dolmen City REIT offered investors a 25% stake in a 22.24 billion rupee ($218.5 million) shopping mall and an office complex at Dolmen City, one of the most prominent real estate developments in Karachi, Pakistan’s largest city and its economic hub. The Arabian Sea-front project includes three other structures not included in the REIT.

Traders and the REIT’s main advisor said the initial offer for 75% of the trust to institutional investors and high net-worth individuals through bookbuilding on Monday and Tuesday drew demand of more than 7 billion rupees for an offering of shares worth 4.17 billion rupees at a floor price of 10 Pakistani rupees ($0.10). At the strike price, the initial offer raised 4.59 billion rupees, according to the REIT’s lead manager.

The remaining 25% of the stake was to be offered to the public on Friday at a strike price of 11 rupees ($0.11). Analysts and the REIT’s management expected the Friday offering to be fully subscribed as well, raising another 1.53 billion rupees.

“The interest rate is at a 42-year low, with the discount rate at 7%, so for people who invest in fixed-income instruments, REITs are attractive,” said Muhammad Tahir Saeed, deputy head of research at Topline Securities, a Karachi-based brokerage.

Pakistan’s economy has improved in recent years, despite political turmoil, major security challenges, and chronic electricity shortages that have hobbled industry. The country’s main stock market in Karachi has gained 72% since the 2013 election and the country’s improving prospects are increasingly being recognized internationally. Prime Minister Nawaz Sharif’s government has said boosting investment is one of its key economic objectives.

With both buildings in the Dolmen City REIT fully occupied, it is expected to yield 9.5% in the first year, with a 10% increase every year based on escalation clauses in tenancy agreements. The development is located next to two of Karachi’s most affluent residential areas.

The Dolmen Mall Clifton, Pakistan’s largest shopping mall, currently has an occupancy rate of over 90%, according to a fact sheet provided by the REIT management. The mall has 130 stores, including foreign outlets such as Debenhams DEB.LN -1.13%, and a multi-level department store.

The neighboring Harbour Front office complex is currently fully occupied, with several high-profile tenants like Procter & Gamble and Engro, one of Pakistan’s largest corporations.

Pakistan’s commercial property sector was described in a first-quarter report this year by Lamudi Pakistan, an online real estate portal, as “almost at a standstill”. But analysts said investors in Pakistan are still keen on real estate as a long-term asset, particularly in properties such as Dolmen City’s Harbour Front with high-profile corporate tenants.

“In the long term there are significant opportunities as prices are low, meaning potential yields are high, and there is considerable room to expand and modernize Pakistan’s stock of commercial real estate,” BMI Research said in a report on the country’s real estate sector earlier this year.

Analysts said the success of the Dolmen City REIT could boost interest in the instrument.

“People were looking at Dolmen and expecting that, if it succeeds, many REITs will be launched in the coming years [in Pakistan],” said Saeed of Topline Securities. “I can foresee some groups [developing shopping malls] jumping into this asset class.”
Riaz Haq said…
#Pakistan gets a boost with #Moody's rating upgrade to B3, Big REIT launch, #MSCI upgrade review via @frontiermarkets

Pakistan had a good week. Index provider MSCI surprised many observers by announcing that the South Asian nation will be included in MSCI’s 2016 review for potential upgrade to emerging markets status.
Later in the week, investors pounced on the opportunity to buy into Pakistan’s first real estate investment trust in a heavily oversubscribed IPO. And ratings agency Moody's MCO -0.04% upgraded the country’s foreign currency ratings to B3 from Caa1, citing “continued strengthening of the external payments position and sustained progress in structural reforms under the government’s program with the IMF.”
Riaz Haq said…
World Bank Report: #Pakistan attracting millions of foreign workers from abroad …

A report by the World Bank (WB) and International Fund for Agricultural Development (IFAD) reveals that, Asia and the Pacific are on the onset of new economic growth patterns, countries like Hong Kong, Japan, Singapore are on the lead to attract the foreign workers . Like wise Malaysia and Thailand are now “net importers” of labour, countries like Pakistan and India are also attracting millions of workers from abroad
Riaz Haq said…
Wikileaks confirms fears of activists against #US trade in services agreement (#TISA) with countries incl. #pakistan

WikiLeaks released 17 secret documents from the Trade In Service Agreement (TISA) negotiations on June 3. The documents have confirmed the fears of campaigners around the world that TISA is designed to benefit corporations at the expense of workers and the general public.

TISA is being negotiated between the US, European Union, Australia, Canada, Chile, Hong Kong, Iceland, Israel, Japan, South Korea, Liechtenstein, New Zealand, Norway, Switzerland, Taiwan, Uruguay, Colombia, Costa Rica, Mexico, Panama, Peru, Turkey, Pakistan and Paraguay. These countries make up about two-thirds of global GDP.

The secretive talks began in 2012 when a group of countries — giving themselves the Orwellian name of “Really Good Friends of Services” — became unhappy with negotiations in the World Trade Organisation, in which poorer countries were demanding more equality and a focus on development and public interest.

Corporate wish list

Our World Is Not For Sale (OWINFS) said on June 3: “The TISA is exposed as a developed countries’ corporate wish lists for services which seeks to bypass resistance from the global South to this agenda inside the WTO, and to secure an agreement on services without confronting the continued inequities on agriculture, intellectual property, cotton subsidies, and many other issues.”

TISA aims to liberalise services industries, including transport, telecommunications and finances. Services make up a large part of the economies of the negotiating countries, even the poorer ones — nearly 80% in the US and EU and 53% in Pakistan.

This leak follows WikiLeaks' release of the TISA Financial Services Annex in June last year, and the December leak of cross-border data flows, technology transfer, and net neutrality documents.

The cover page of the financial services document highlighted the extraordinary lengths that the parties would take to ensure secrecy. It said it should only be declassified “five years from entry into force of the TISA agreement or, if no agreement enters into force, five years from the close of the negotiations”.

Only Switzerland has been publishing its contributions to the negotiations.

This would leave the public unaware of the provisions in the agreement even as they were being implemented.

Nick Dearden, director of Global Justice Now, said on June 4: “It’s a dark day for democracy when we are dependent on leaks like this for the general public to be informed of the radical restructuring of regulatory frameworks that our governments are proposing.”

Deborah James of OWINFS said: “The secrecy charade has collapsed. TISA members trying to keep their publics in the dark as to the negative implications of the corporate TISA for financial stability, public safety, and elected officials’ democratic regulatory jurisdiction have been exposed to the light of day, in the largest leak of secret trade negotiations texts in history.”

International Trade Union Confederation (ITUC) general secretary Sharan Burrow said on June 5: “Trade deals being done behind closed doors are setting up working people to lose out and aiming to concentrate yet more power and wealth in the hands of multinational corporations, at the expense of the common good.

“With big majorities of people in ITUC Global Poll results showing deep concern over the influence of major corporations, governments need to turn their attention to building a trading system that works for the common good.”
Riaz Haq said…
One very disturbing aspect of TISA is the document uncovered by WikiLeaks revealing an entire section on immigration, referred to as “Movement of Natural Persons.” This section discusses commitments by the parties not to place undue burdens on visas and singles out face-to-face interviews as an example of “overly burdensome procedures.” [see the footnote on page 7] At a time when we face so many national security problems, why would conservatives trust this president to squelch any visa provision threatening our security?
And guess who is a party to TISA?
Pakistan! In addition to the massive immigration from Pakistan, we admitted 78,000 Pakistani nationals on some type of visa in 2013. Do we really want to join in an agreement that could loosen restrictions on visas from Pakistan?
Guess which other country is a part of TISA? Mexico! For good measure, Turkey is also a party to TISA. What could go wrong?
There is a lot of hype being thrown around about some of these treaties, but the WikiLeaks document on TISA is very believable because service industries, the tourism industry in particular – hate all restrictions on visas. Their opposition is certainly understandable, but that is the price we must pay when scrutinizing visas from volatile and dangerous parts of the world.
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Riaz Haq said…
The problem with TISA, as it’s currently being negotiated, is that under its terms, America (and any other signatory nation) would be prohibited from controlling which nation stores your personal data. Let’s say you keep your medical records stored in the cloud with a Google application. Right now, your medical data has to be stored within the United States, with all its privacy protections. But under TISA, it won’t have to be. Google could outsource its data storage to, say, Pakistan, and you would have to rely on the government of Pakistan to protect your privacy. That ought to concern you.

The key language in TISA is this: “No Party may require a service supplier, as a condition for supplying a service or investing in its territory, to: (a) use computing facilities located in the Party’s territory.”

Your data, in other words, could be stored anywhere, and subject to any level of protection the host country believes it should have.

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Riaz Haq said…
After years of boosting global growth, developing economies now a major drag on world economy

It was only five years ago, but it feels like a different era. Roger Agnelli, the then chief executive of Vale, the Brazilian mining company, had just taken delivery of the first of an order of 35 Valemax ships, the biggest dry bulk carriers ever built. The vessels, bought primarily to ship iron ore to a voracious China, were so large that each one could carry iron ore sufficient for the steel to build the Golden Gate Bridge in San Francisco three times over.
“We are living through our best days . . . I strongly believe that even better days are ahead of us,” said Mr Agnelli in 2010. But Vale’s fortunes would soon begin to fade. Mr Agnelli was ousted a year later, and China temporarily banned the ships from its ports on safety grounds. In the first quarter of this year, the company reported its worst financial performance in six years.
Vale’s problems are symptomatic of a broader malaise, with emerging markets slumping in the first quarter to their weakest performance since the 2008-09 crisis. China’s appetite for metal ores and other resources is on the wane, Brazil’s once-buoyant economy is in recession, Russia is in crisis and several smaller countries are also suffering declining growth and capital outflows.

The worry is that these problems are no longer contained within emerging market economies; they are spreading to the developed world too. The dependable boost that the global economy has derived from the youthful dynamism of its developing countries for well over a decade — with the exception of during the global financial crisis — has recently become an outright drag. The Bric countries (Brazil, Russia, India and China) — long seen as the world’s growth engine — are now a particular burden.
Riaz Haq said…
#China’s Market Intervention & #Pakistan Lesson: Global Ponzi Denouement? … 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.”
Riaz Haq said…
Developed and current emerging markets are not offerings returns as high as frontier markets.
Pakistan’s economic outlook is improving, thanks to China’s investment, low oil prices and rate cuts.
MSCI Pakistan is a decent bet for a frontier market exposure; it’s cheap on relative valuation.
Developed equity markets continue to trend higher. It is hard to predict the end of the current bull market, but the returns would be limited going forward. S&P trades at a PE of 21.24 while NASDAQ composite is trading around 23 times the trailing earnings. European markets are also rising but the upside seems limited given high multiples. Emerging markets are witnessing aslowdown in growth. High return investments are not easily found in the above mentioned markets under current circumstances. However, there are alternatives for investors with a high risk-appetite: the frontier markets.
Frontier markets are small to be classified under emerging markets but they often entail a higher return at a higher risk. One such frontier market is Pakistan, which has started to look attractive. Equity market of Pakistan is trading at a substantial discount and can bring considerable gains to investors. Detailed thesis follows:
Status of Pakistan might be upgraded to an emerging market.
Pakistan is up for consideration to be included in emerging markets. MSCI will review for a potential upgrade in June 2016. According to WSJ, Pakistan is liquid and deep enough to be considered as an emerging market. KSE 100 index is one of the best performing equity markets since the financial crisis of 2008. Note that Pakistan meets most of MSCI's emerging market requirements. It is highly likely that Pakistan will be upgraded to the emerging market status. If that happens, the PE multiple of Pakistan's equities will expand resulting in substantial gains for investors.
KSE 100 is one of the best performing equity markets trading at a discount.
In 2013, KSE 100 rose 37%, in dollar terms, topping S&P 500 and every other benchmark in Europe. It was the third best performing market in 2014 with a31% return. The index is up ~19% during the trailing twelve months. Despite the run, the index trades at 8.3 times forward earnings, an 18% discount to MSCI's frontier markets.

The economy is in a turnaround mode; related indicators are positive.
Economy is getting a boost from several developments. Falling oil prices are a big positive that are keeping a check on inflation. This, in turn, is allowing for rate cuts, which will give a boost to economic activity and the stock market. Pakistan is a net importer of oil; prices of oil are not expected to go up any time soon, think recent U.S.-Iran deal. Oil prices will continue to have a positive impact on the economy of Pakistan. As mentioned above, low interest will also boost the economy. Interest rates are cut by 1% to drop to 7%. The Government is pursuing aggressive rate cuts; they are down from 10% in November 2014 to 7%currently.
Other favorable factors include pro-business government and favorable demographics; 54% of the population of Pakistan is under 25 years. The current Government is heavily investing in infrastructure; a $500 million Metro transport project is recently completed in twin cities, Islamabad and Rawalpindi. Other construction projects are expected to boost materials and construction industry. Elimination of circular debt by the Government bodeswell for power producers. Further, consumer spending is increasing; 26% p.a. increase in spending was recorded (pdf) during 2010-2012 as compared to Asia's 7.7% growth. Analysts' expect the GDP to grow at 4.6% p.a. through 2019.
Pakistan's security forces' operation against terrorism is proving to be fruitful. Number of civilian casualties has declined by 81% since 2013. Number of drone attacks by the U.S. in Pakistan has decreased 62% since 2013 indicating that terrorist element is being eliminated efficiently.
Riaz Haq said…
Dolmen City REIT, #Pakistan's First Real Estate Investment Trust) posts net profit of Rs169.9m …

KARACHI: In its maiden earnings announcement following the public listing in June, the management company of Pakistan’s first real estate investment trust (REIT) scheme said on Monday its net profit amounted to Rs169.9 million for the period ending on June 30.

Trading of the units of Dolmen City REIT, which is run by Arif Habib Dolmen REIT Management, began on the Karachi Stock Exchange on June 26, although the announced profit is for the period starting on January 20 and ending on June 30.

REITs are collective investment schemes that pool investors’ funds for onward investment in real estate.

No year-on-year comparison of Dolmen City REIT can be made because of the unavailability of comparable data.

Traditionally, small investors have been unable to take part in real estate investments in Pakistan, as the property market is considered highly illiquid and capital intensive. There are few publicly listed property developers in Pakistan while REITs had practically been non-existent so far.

However, as the first-of-its-kind investment avenue in Pakistan, Dolmen City REIT offers small investors the opportunity to take advantage of a booming real estate market by trading in REIT units.

Besides being the first REIT in Pakistan, Dolmen City REIT is also the first publicly listed trust of its kind in South Asia.

REITs operate like close-end funds, as pooled capital is invested in real estate and its units are listed on the stock exchange that investors can buy and sell every day just like ordinary stocks.

The underlying assets of Dolmen City REIT are the two components of the Dolmen City project: Dolmen Mall Clifton and the Harbor Front building, which are located on the Karachi seafront.

The property was originally owned by International Complex Project (ICP). The Arif Habib Group controlled 20% shares in ICP while 80% ownership rested with the Dolmen Group before the public listing. The monetary value of the total fund of Dolmen City REIT is Rs22.2 billion.

The property generates rental income that is distributed by the REIT scheme among unit holders in the shape of dividends. The first profit announcement was accompanied with a final cash dividend of Rs0.08 per unit for the period ended June 30.

Speaking to The Express Tribune, Arif Habib Dolmen REIT Management CEO Muhammad Ejaz said the trust was registered on January 20, but the rental income started accruing to Dolmen City REIT from June 1. Therefore, the rental income of Rs193.6 million, which resulted in the net profit of Rs169.9 million, was generated in the month of June alone, Ejaz said.

In a pre-IPO interview, Ejaz had said unit subscribers should expect a 9.25% dividend yield in the first year of operation.

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