ISLAMABAD, June 2 (APP): Pakistan’s re-entry into the emerging
market block, achieved with an amazing speed due to China Pakistan
Economic Corridor (CPEC), is a first step towards
becoming an Asian Tiger that would lure wider class of investors,
injecting huge amounts of money into the country.
According to an article appeared in Tokyo-based magazine The
Diplomat, Pakistan is the first country to get the frontier-to-
emerging market promotion in MSCI’s latest review after Qatar and
the United Arab Emirates several years ago.
Experts expect global funds to come pouring into Pakistan’s stock
markets as a result.
Pakistan’s stock market has made history, giving a thrilling
lesson to global investors and businesspeople who are wondering why
money is flowing into this country despite many challenges.
Indeed, economic growth is stabilizing Pakistan’s political atmosphere
in Karachi, Balochistan, and the Federally Administered Tribal Areas
(FATA).
The upgrade puts Pakistan in good company. Other members of
MSCI’s Emerging Markets Asia Index include China, India, Indonesia,
Malaysia, the Philippines, South Korea, Taiwan, and Thailand. This
shift will attract foreign investment into Pakistan.
The chief reason behind Pakistan’s emerging status is China-funded
loans and investments made under the umbrella of CPEC, with Pakistan following pattern of Argentina and Vietnam.
The CPEC, as the flagship of China’s Belt and Road project, helped
rapidly convert Pakistan into an Asian “emerging market.” The
settling of the balance of payments also helped Pakistan to achieve
this status.
According to Finance Minister Mohammad Ishaq Dar in his budget
speech on May 26, Pakistan would become an “emerging market”
effective June 1, on the basis of the performance of the Karachi
Stock Market (KSE100), which emerged as the most profitable market
in Asia last year.
Pakistan had lost `Emerging Market’ position in late 2008,
following a period of market turmoil that halted trading for months
in Karachi.
The outclass performances of Pakistan’s banking, energy,
cement, oil and gas, and fertilizer sectors added to this
performance and brought Pakistan into the limelight of stock markets
around the world.
Global X MSCI Pakistan ETF quadrupled in value
last year, reaching US$48 million. In 2016, Pakistan’s KSE100 was
the top-performing market in Asia, with 46 percent growth.
Other Asian giants like Japan, South Korea, Singapore,
Thailand, and Malaysia have long resisted investing in Pakistan’s
markets.
Now the performance of the KSE100 has outclassed the rest
of Asia and Pakistan has become an emerging market. If these
countries continue to ignore the Pakistani market, it will clearly
be for political reasons rather than market-driven sentiments.
Japan, South Korea, and other East Asian investors in
particular need to overhaul their basic investment strategy toward
Pakistan and reap the benefits.
The market is offering lucrative benefits. The KSE100’s outperformance
is likely to continue given Pakistan’s GDP growth, falling poverty, and
burgeoning middle class. GDP growth has hit an all time high of 5.2 percent in
the past decade.
Yes, isolated terrorist incidents will continue to have small-
scale effects on the economic management, but they will not be major
impact factors.
Plus, unlike many East Asian economies, Pakistan’s
market is virtually free of the impact of North Korean provocations.
East Asian investors need to take these factors into account while
investing in Pakistan as new frontiers are emerging under CPEC.
The prudent macro-economic management and fiscal discipline of
the present government over the past four years and its CPEC-driven
enthusiasm have led Pakistan to achieve its goal of regaining
emerging market status.
Pakistan must continue to strive to improve corporate
governance to better its chances of becoming an Asian tiger. Efforts
should be made at the bilateral and multilateral level to convince
investors from East Asia, Europe, North America, and Oceania to
investment in Pakistan.
