HONG KONG: Pakistan's stock market offers a glimmer of hope for a country all too often known for bad news. MSCI, the influential index provider, is likely to reclassify the nation from frontier to emerging market status in June when it announces the results of its annual review.
It is a timely reminder that the country is not in bad shape for investors who can stomach the political risk.
The nation was booted out of the emerging markets index in late 2008 after the local exchange imposed a price floor to halt a downward spiral and trading was practically suspended for five months.
Pakistan's share of the emerging market index, if it was to be included, would likely be just 0.19 percent. The Karachi SE 100 Index has a market capitalization of $60 billion.
The upgrade would be the latest bit of good news for the economy, which the World Bank expects could grow 4.5 percent in the year ending in June.
A collapse in the oil price has helped to stabilize government finances, and Pakistan has cut its fiscal deficit to 5.3 percent, from a staggering 8.2 percent in 2013.
A three-year International Monetary Fund programme worth $6.7 billion is also due to wind down in September.
A promotion to the more widely followed index would trigger a net inflow of $400 million, local brokerage Topline Securities estimates.
In the eleven months after MSCI announced in 2013 that Qatar and the United Arab Emirates would be upgraded, their stock markets rose 38 percent and 84 percent respectively.
For those who can look past political infighting and terrorist-related violence, Pakistan offers a potential steal. Indices in other emerging markets like India and South Africa trade at around 18 times their forward earnings.
Though the Karachi index is already up over 10 percent this year, it is still at just 9.9 times forward earnings. In an era of asset inflation, that counts as a bargain. - Reuters
Note:Â The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
