Foreign investors returning to Pakistan, says Tarin

 

ISLAMABAD: “Investors are looking for stability and opportunity at returning to Pakistan and that is why foreign investors are coming back,” said Shaukat Tarin Federal Minister for Finance in an interview with the Financial Times.

Pakistan has “come a long way from the end of last year when we were basically looking at a default [on foreign debt payments]”, he told the newspaper.

Shaukat Tarin said that it seems foreign investors agree with his assessment, returning in force to the Karachi stock Exchange (KSE), Pakistan’s main stock market, just 18 months after many chose to exit in the midst of economic, political and security related turmoil.

In August, foreign equity investments rose to approximately $95m, a higher monthly average than the $85m a month seen in 2007 when the KSE figured prominently as a destination for foreign investors.

Investor enthusiasm has been strengthened by KSE recently becoming the most undervalued market across Asia, the Financial Times reported.

The report said that Tarin routinely flicks through the afternoon business news update to get the latest on the KSE’s performance.

“People are looking at a country where economic fundamentals are improving,” he says just moments after the KSE closed yet again on a positive note.

In August, the KSE rose 12 per cent in a sign of growing interest from investors.

Key economic variables that Tarin cites as evidence of growing comfort both for the government and investors include a significant fall in inflation to 11 per cent, down from almost 25 per cent a year ago, and an increase in foreign currency reserves to about $14bn from $3.5bn towards the end of 2008.

The result is “the knowledge among investors that this economy is gaining strength”, the Financial Times report said.

Tarin’s analysis is supported by independent watchers. “KSE’s outlook for the foreseeable future has improved,” says Muhammad Suhail of Karachi’s Topline Securities, a KSE equity investment company.

Many investors previously eager to leave the market are returning, he adds. “The valuations [of individual stocks] are just too attractive to be easily ignored.”

The turnaround has been helped by a loan of $11.6bn from the International Monetary Fund to stabilise the country’s economy.

Adnan Mazarei, the head of the IMF staff mission that negotiated the loan, says, “The financial market’s performance is improving, there is a renewal of foreign interest in Pakistan.”

Economists have repeatedly urged Pakistan to work to improve key aspects of its economic structure, notably it’s chronically underperforming tax collection machinery and public investments for the benefit of the poor.

As Pakistan braved an attempt by Taliban militants just in the past year to advance from its northern Swat valley to the country’s heartland, economists warn that such militancy has an economic angle.

Repeated calls by western donors to revamp the tax collection network have been ignored by past governments.

The resultant fiscal deficits have been reduced repeatedly under successive governments by enforcing cuts in development expenditure, the Financial Times report said.

These issues are unlikely to curtail the KSE’s forward march immediately, say commentators, it added. “The perspective that people take on the market will essentially be that of a few months,” says the chairman of a company listed on the KSE.

“Everyone is deeply aware of the long term challenges faced by the economy and of course that matters ultimately for the KSE’s long term future, but there is money to be made in the short term.” 

 

 

Courtesy: The News

 

September 08, 2009