CPEC to boost industrial production, augment development work in Pakistan: Moody’s

BE2C2 Report — Top International Rating Agency Moody’s says the China Pakistan Economic Corridor project will boost economic activities in Pakistan.

According to Moody’s report, the $56 billion CPEC will increase industrial production and augment development work in the country – Pakistan has been upgraded to emerging market status from frontier market, a position it held since 2008.

The report also commended the country’s banking system, saying the banking strength would result in further progress in next fiscal year 2017-18.

Meanwhile, Barron’s Asia commented on Pakistan being one of the top performing stock markets over the past year, soaring by a whopping 55% in U.S. dollar terms. It wrote, “Only the likes of Argentina and Peru can boast juicer returns.”

Last week, Pakistan Stock Exchange (PSX) 100-index dropped from 49, 900 points to 49, 300. According to reports, Rs83 billion ($792 million) were lost in stock trading due to which volume of market capital went down from $93.5 billion to $92.5 billion.

Market analysts say there’s room to absorb the shock, calling it temporary and temporal. On Thursday KSE-100 hit 49,062.

Pakistan will join the esteemed ranks of MSCI’s Emerging Markets index later this year, luring in billions of dollars of passive funds. Pakistan still looks cheap in comparison, too: The benchmark Karachi Stock Exchange 100 index trades at 13 times earnings, compared to 15 on average for emerging markets. That’s a valuation gap of about 15%, while on average Pakistani shares yield nearly 5%.

Maheen Rehman, head of Karachi-based fund manager Alfalah Investments, told Barrons she doesn’t see the rally fizzling out just yet, either – a view held by several others BE2C2 asked for their comments.

The money manager, whose resume includes stints at Merrill Lynch and ABN Amro in Singapore, tells Barron’s Asia by phone that the rally has been powered by “a complete turn in sentiment.” Apart from the MSCI upgrade, Chinese investment has poured in as part of the Middle Kingdom’s ‘New Silk Road’ ambitions, fueling spending on badly needed infrastructure like power plants. Terrorist attacks have fallen in frequency over the past couple of years amid an army crackdown. Spooked foreign executives have since begun returning. That’s helped propel shares higher in industries spanning from cement to auto-makers.

“Rahman’s opinion is worth listening to: not only is she Pakistan’s sole female portfolio manager, her fund has been the top performer since its inception in 2009,” the magazine wrote.

According to Rehman, interest rates and inflation have been stable for the last few months, prompting more long-term decision making on investments by corporates. “Companies are now making plans on where to place capital over the next five years, rather than just the next six months,” Rahman says.

She sees oil trading between $50 and $70 for the next five years. “Within that band Pakistan is in an incredibly comfortable situation,” she reckons.

Rahman recommends holding energy stocks. “Oil companies in Pakistan generally do well when oil is in that sweet spot. If it’s too cheap, they can’t make any money. If it’s too pricey, the economy suffers.”

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