Smart Money to Follow China Into Pakistan

[RiazHaq]

This (China's $46 billion investment in Pakistan) can not be purely politically driven. Beijing is commercial: CEO’s, not think tank intellectuals, travel with politicians. Barron's Asia​

Spurred by Chinese investment, the smart money is taking notice of Pakistan as an attractive investment destination.

The investors are looking at the fact that Pakistani stocks have been outperforming both emerging and frontier markets for several years. The benchmark index of the Karachi Stock Exchange (KSE100) is up more than 20% in the last 12 months, according to NASDAQ.com.

Pakistani Shares in 2015:

After a dismal March, MSCI Pakistan rebounded strongly this month, returning 9.1% so far. In April, the iShares MSCI Frontier 100 ETF (FM) rose 4.3%, the WisdomTree India Earnings Fund (EPI) dropped 1.2%, the iShares MSCI India ETF (INDA) fell 1.9%, according to Barron's Asia.

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KSE-100 Performance:

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 market. Total 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.

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 him 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) share. 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.

Summary:

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.


http://www.riazhaq.com/2015/04/smart-money-to-follow-chinas-massive.html

 

[RiazHaq]

The Indian stock market, as reflected by the S&P BSE Sensex, has fallen by at least 2,100 points or 7.1% from its highs and is adjusting to the reality of subdued earnings. Company results for the January-March 2015 quarter, so far, have not been encouraging, though analysts expect things to improve by the second half of the current financial year. The street expects earnings to get better with the improvement in business environment and pick-up in economic activity. Put differently, in the medium term, market movement will largely depend on the pace of expansion in the economy, which, to a large extent, will be determined by government action and implementation of ideas such as increasing capital expenditure.
Interestingly, even as some investors are getting edgy and expect quick government action on various fronts, observations from some of the international institutions that came in this month were largely optimistic about the future of the Indian economy. Encouraged by the recent policy action, rating agency Moody’s, while affirming its Baa3 rating on India, changed its outlook to positive from stable. It said in a statement: “…recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India’s sovereign credit constraints.”
The government’s intent to improve the economic environment and action taken in this regard is being recognized. “Growth will benefit from recent policy reforms, a consequent pick-up in investment, and lower oil prices. Lower oil prices will raise real disposable incomes, particularly among poorer households, and help drive down inflation,” said the latest World Economic Outlook (April 2015) of the International Monetary Fund (IMF). Growth in India, according to the IMF, will be higher than that in China in 2015 and 2016, making it the fastest growing large economy in the world. It expects India to grow at 7.5% in both 2015 and 2016. Meanwhile, the Chinese economy is expected to expand at an annual pace of 6.8% and 6.3%, respectively.
The World Bank had similar observations about the Indian economy. In its South Asia Economic Focus (Spring 2015) report, it noted, “India’s economy is poised to accelerate on the back of an ambitious reform agenda, and faster growth is expected to further drive down poverty.” The acceleration in growth, according to the World Bank, will be led by investment, which is expected to grow at an average rate of 12% between 2015 and 2017.
However, not all are equally enthused. A recent report (India’s Fiscal Roadblocks Could Stall Infrastructure Progress) by Standard & Poor’s presented a different picture. “India’s public finances are less than rock solid due to long-standing cracks in its budgetary system. While the country’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock,” the report said. It also highlighted that further reforms will be required on the fiscal front to be able to sustain higher investment spending. Efficient subsidy spending, which can free up resources for capital spending, is necessary to attain and maintain higher growth in the medium to long term. Both markets and policymakers will do well by paying attention to Standard & Poor’s observations. In fact, a financial or commodity shock can not only affect the progress made on the fiscal front, but also the wider economy.


http://www.livemint.com/Money/jClwq...ewing-India-and-some-emerging-challenges.html

 

[RiazHaq]

If enacted, that (Pak-China Corridor) plan would enable China’s naval vessels and merchants to bypass the Malacca Strait, long a haven for pirates and militants who prey on unsuspecting ships. The CPEC would allow the government and banks in the mainland to lend to Chinese companies operating in Pakistan, facilitating construction along the route. Some of the other line items in the deal aim to fix Pakistan’s failing energy infrastructure: the CPEC calls for $15.5 billion in investments ranging from coal to solar and hydroelectric power, scheduled to become part of Pakistan’s national electricity mix in 2017. That will follow a fiber optic cable linking Xinjiang and Rawalpindi, which will come at the cost of $44 million.




China has plenty of incentive to unleash a spigot of investment, despite fears that Pakistani radicals are stoking violence in Xinjiang among the 10 million Uyghur Muslims that live there. Beijing has already pushed heavily for other projects in the region, including the 1,240 km Karachi-Lahore motorway, a six-lane, high speed corridor expected to be completed in the fall of 2017, and orchestrating upgrades to public transportation, including metro and bus service, in six cities, including Lahore, Karachi, and Rawalpindi. Modernizing the Karakoram highway, which runs 1,300 km from Kashgar, the ancient silk road crossing in Xinjiang, all the way into the heart of the Punjab, Pakistan’s biggest province, will also prove critical.

All of that leads to Gwadar, which China hopes to transform into a free-trade zone on the order of a Singapore or a Hong Kong, another major focus for Chinese investors. That carries geopolitical weight. China’s aid to Pakistan now exceeds American spending, which has totaled $31 billion since 2002. Washington’s investments have slowed since counterterrorism funding authorized by Congress during the Afghan surge has dried up.

It’s not as though China isn’t interested in military issues. President Xi also used the occasion to finalize a deal to send eight submarines to Pakistan, in a long-promised deal. They’re also working to get on shared ideological ground: the Research and Development International think tank (*****), will be chaired by Pakistani and Chinese leaders. That unfortunate acronym became the butt of plenty of Twitter jokes on Monday. But the group could wield serious influence, especially in thinking up plans to help Pakistan fight terror and potentially determining the role of mediators in talks with the Taliban in neighboring Afghanistan.

China’s grand plan for Pakistan’s infrastructure has taken shape over the course of President Xi’s visit. It will have a major impact on what the future holds for Islamabad, and the entire Indian Ocean basin.

http://thediplomat.com/2015/04/chinas-grand-plan-for-pakistans-infrastructure/