Pakistan: the Heat Is on September 2017
PAKISTAN: THE HEAT IS ON SEPTEMBER 2017 As we noted earlier this year (Pakistan: Banking on Reform, May 2017), Pakistan has been a successful investment outpost for our Frontier Markets Equity strategy since its inception in 2014. We often ran an overweight position in this market over this period, in what was a positive transformative phase for the Pakistani economy. This culminated in the 2016 announcement from MSCI that the country would be reclassified as an Oliver Bell emerging market – which occurred in May this year. Portfolio Manager, Frontier Markets Equity The overwhelming majority of our positions in Pakistan have since been offloaded, Strategy as the investment thesis on these positions played out – largely due to the strong rise for the market in the lead-up to its entrance to the MSCI Emerging Markets Index. However, as we noted in our earlier update, risks have been building in the country – in both the economic and political spheres. Unfortunately, our concern was warranted, with the country’s stock market sliding in recent weeks on a number of significant negative developments. Malik Sarmad Asif Equity Analyst DETERIORATING ECONOMIC CONDITIONS While GDP growth recently came in at a 10-year high1 – largely due to the China– Pakistan Economic Corridor – the broad economic picture in Pakistan is deteriorating. Firstly, Pakistan’s current account deficit more than doubled to US$12.1bn in the year ended 30 June, largely as a result of an overvalued rupee.2 Since peaking last October, foreign reserves have also fallen by a quarter to US$14.3bn.3 The country also faces a twin deficit, with the fiscal deficit blowing out to 6% – far higher than the government anticipated.4 1 Source: State Bank of Pakistan 2 Source: State Bank of Pakistan 3 Source: State Bank of Pakistan 4 Source: Dawn, 6 September 2017 FOR INVESTMENT PROFESSIONALS ONLY.
[Show full text]