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Forget India, Its Neighbors Are the Next Big Thing

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Forget India. Investors looking for the next big thing should look to its South Asia neighbors instead – Pakistan, Bangladesh and Sri Lanka.

With a combined 390 million people, the three countries represent what Morgan Stanley chief global strategist Ruchir Sharma calls “the quiet rise of South Asia” as opposed to India which has been “flattered by spasms of hype for years”. While overshadowed by their larger neighbor, the trio is enjoying fast-paced growth, embracing much needed reforms, and look set to enjoy a demographic dividend over the long term. “A substantially higher economic growth rate than in many other economies globally, coupled with fantastic demographics that will continue supporting growth for many years ahead”, East Capital fund manager Adrian Pop tells Barron’s Asia. The Stockholm-based firm manages nearly EUR3 billion in frontier markets.

Pakistan is the flag bearer of the positive changes taking place in the South Asian nations. Since coming to power five years ago, Prime Minister Nawaz Sharif has got inflation under control, cut the budget deficit and reined in the current account deficit. But more importantly, terrorism finally appears to be on the back-foot given more assertive action by the army. Chinese investment has also poured in: $50 billion will be spent on new roads, transport links and energy projects. “More power capacity is key for Pakistan to move to an even higher economic growth rate,” says Pop. That will benefit stocks in materials and energy. In December, the Pakistan Stock Exchange sold 40% of itself to consortium of Chinese investors.

The Karachi stock index is up by about 50% since the start of last year, propelled by index compiler MSCI’s decision to bump up the country to emerging markets status. That will bring in hundreds of millions of dollars from passive funds into the Pakistani benchmark. The rally in stocks has arguably left the market looking a little pricey as the KSE 100 index trades at over 12 times earnings, its heftiest valuation since late 2009. That’s still about a 15% discount to the MSCI emerging markets index, however, plus Pakistani stocks yield an attractive 4%-plus dividend.

Bangladesh’s rise has so far been more tempered. The country, which split from Pakistan in the early 1970s, benefits from a growing working age population and rising labor costs elsewhere in Asia. Garment manufacturing for Western clothing companies has increasingly moved from China to places like Bangladesh, where wages are lower. The government’s also investing billions in upgrading the country’s patchy power supply, which will address energy shortages and boost manufacturing.

Still, foreign participation in Bangladesh’s stock market is small. HSBC estimates foreigners make up only 2% of the Dhaka stock index’s market cap. The market does however look quite cheap on a historical basis, trading at 15 times trailing earnings. Return on equity, or profit generated as percentage of shareholder equity, is high at almost 20%.

Sri Lanka’s more understated still. The economy could slow in the short-term after an International Monetary Fund bailout in 2016 prompted by a huge budget deficit. Some of the reforms to balance the budget, like higher value-added taxes, will probably hit consumption. The government’s also been prodded to reform and privatize state-owned enterprises. “We view these measures as necessary for a healthier and more sustainable macro environment,” even if growth suffers in the meantime, says Pop. Tourism remains a bright spot, as arrivals continue to grow.

Could the election of Donald Trump halt the quiet rise of South Asia? Trump wants to bring blue collar jobs back to the States and penalize American companies that manufacture overseas. Some are sanguine, though. “We do not believe that these companies will move production back to their home countries,” says East Capital’s Pop, reasoning that the spread between wages in the West and in markets like Bangladesh is too big to realistically think about moving these jobs back.

Another threat is the rising price of oil. Crude prices have risen by about 50% from their 2016 lows, which isn’t great news for all three countries, as they’re all net importers of the black stuff. Higher oil prices can cause higher inflation, a hot button issue in lots of developing countries, and bigger trade deficits. Pop argues that higher oil prices can also be a positive given the huge number of South Asians work employed in the oil-rich Gulf nations. A rosier economic outlook in these countries boosts the flow of remittances back to workers’ home countries.

Back in August, Barron’s Asia recommended readers buy three Pakistan blue-chipsahead of the country’s inclusion in the MSCI Emerging Markets index. They’ve risen by 20% on average and now trade near recent historical peaks on a price-to-earnings basis. In other words, they look expensive. We’ve found two new overlooked Pakistani stocks investors should consider, as well as picks for Bangladesh and Sri Lanka.

PAKISTAN

Oil & Gas Development Co

In August we tipped downstream firm Pakistan State Oil (PSO.PK), which has since risen 10%. It’s worth hanging onto that stock, but we’d add upstream exploration player Oil & Gas Development (OGDC.PK) to the mix too.

Shares in the Islamabad-based company have powered up 45% in the last year, and could rise by a further 30%. Oil & Gas Development will benefit from any further recovery in oil prices, which have roughly doubled since hitting their nadir last February. Earnings per share should rise by 17% in full-year 2017 and 20% in full-year 2018.

Oil & Gas Development trades at eight times forward earnings, which is toward the higher end of its historical valuation. That multiple is more compelling than exploration peer Pakistan Petroleum (PPL.PK), however, which trades at 10 times next 12 months’ earnings.

Oil & Gas Development also pays a 3% dividend.

DG Khan Cement

Lahore’s DG Khan Cement (DGKC. PK) is one of the country’s largest cement producers, with a capacity of more than four million tons a year. The stock also makes a good foundation for a Pakistan portfolio.

The firm should benefit from billions of dollars of new infrastructure in the South Asia country, much of it coming courtesy of investment from China. At the end of December, the countries jointly announced a $14 billion dam project close to DG Khan’s HQ in northern Pakistan. The dam will need about a million tons of cement.

Shares in the company have returned a solid 50% over the last year. DG Khan’s valuations looks a bit less stretched than that of rival Lucky Cement (LUCKY.PK), which we told investors to pour into their portfolio over summer. DG Khan trades at 10 times forward earnings, compared to Lucky’s 16 times. Its dividend yield of 2.6% is also bigger than its rival. Brokers think DG Khan can rise by as much as 25%.

BANGLADESH

BRAC Bank

BRAC Bank is one of Bangladesh’s biggest lenders, specializing in credit to small-to-medium-sized businesses. More than a third of the country’s entire SME loan book goes through BRAC, according to estimates.

Some of BRAC’s strengths include its large retail and ATM network, while the bank’s also well-positioned to comply with Basel III requirements within the next couple of years. Analysts think BRAC is unlikely to have to raise more capital and dilute investors as a result.

The most exciting aspect of the stock, however, is its mobile payments platform. Bangladesh is one of the world’s fastest-growing markets in the use of mobile payments, and BRAC’s bKash platform has the vast majority of market share, with 17 million users. The platform’s been profitable since 2014.

In the last year BRAC Bank’s shares have returned over 40% and the stock also yields about 4%. BRAC is thinly covered by sell-side analysts, but recent target price estimates suggest the stock could rise by almost 15% this year.

SRI LANKA

John Keells Holdings

Colombo’s John Keells Holdings (JKH.LK) is Sri Lanka’s top conglomerate, with interests spanning transport, food, property and plantations. It’s also the biggest component of the local index, at about 8% of market capitalization. The shares could rise by 15% in the next year.

The shares haven’t performed well of late, though. John Keells has slipped almost 3% in the last year, compared to an almost 20% rise in Sri Lanka’s benchmark stock index. Catalysts for a turnaround include new consumer offerings in underpenetrated areas like ice cream and soda. John Keells is also bidding to operate a proposed new container port on the island.

The shares look quite cheap at 12 times forward earnings, compared to their five-year average of 16 times. Another option is rival conglomerate Hemas Holdings (HEMS.LK), but the stock trades at a chunkier 15 times next 12 months’ earnings. John Keells also pays a 3% dividend.

Email: daniel.shane@barrons.com

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Banglar Bir

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Forget India. Investors looking for the next big thing should look to its South Asia neighbors instead – Pakistan, Bangladesh and Sri Lanka.

With a combined 390 million people, the three countries represent what Morgan Stanley chief global strategist Ruchir Sharma calls “the quiet rise of South Asia” as opposed to India which has been “flattered by spasms of hype for years”. While overshadowed by their larger neighbor, the trio is enjoying fast-paced growth, embracing much needed reforms, and look set to enjoy a demographic dividend over the long term. “A substantially higher economic growth rate than in many other economies globally, coupled with fantastic demographics that will continue supporting growth for many years ahead”, East Capital fund manager Adrian Pop tells Barron’s Asia. The Stockholm-based firm manages nearly EUR3 billion in frontier markets.

Pakistan is the flag bearer of the positive changes taking place in the South Asian nations. Since coming to power five years ago, Prime Minister Nawaz Sharif has got inflation under control, cut the budget deficit and reined in the current account deficit. But more importantly, terrorism finally appears to be on the back-foot given more assertive action by the army. Chinese investment has also poured in: $50 billion will be spent on new roads, transport links and energy projects. “More power capacity is key for Pakistan to move to an even higher economic growth rate,” says Pop. That will benefit stocks in materials and energy. In December, the Pakistan Stock Exchange sold 40% of itself to consortium of Chinese investors.

The Karachi stock index is up by about 50% since the start of last year, propelled by index compiler MSCI’s decision to bump up the country to emerging markets status. That will bring in hundreds of millions of dollars from passive funds into the Pakistani benchmark. The rally in stocks has arguably left the market looking a little pricey as the KSE 100 index trades at over 12 times earnings, its heftiest valuation since late 2009. That’s still about a 15% discount to the MSCI emerging markets index, however, plus Pakistani stocks yield an attractive 4%-plus dividend.

Bangladesh’s rise has so far been more tempered. The country, which split from Pakistan in the early 1970s, benefits from a growing working age population and rising labor costs elsewhere in Asia. Garment manufacturing for Western clothing companies has increasingly moved from China to places like Bangladesh, where wages are lower. The government’s also investing billions in upgrading the country’s patchy power supply, which will address energy shortages and boost manufacturing.

Still, foreign participation in Bangladesh’s stock market is small. HSBC estimates foreigners make up only 2% of the Dhaka stock index’s market cap. The market does however look quite cheap on a historical basis, trading at 15 times trailing earnings. Return on equity, or profit generated as percentage of shareholder equity, is high at almost 20%.

Sri Lanka’s more understated still. The economy could slow in the short-term after an International Monetary Fund bailout in 2016 prompted by a huge budget deficit. Some of the reforms to balance the budget, like higher value-added taxes, will probably hit consumption. The government’s also been prodded to reform and privatize state-owned enterprises. “We view these measures as necessary for a healthier and more sustainable macro environment,” even if growth suffers in the meantime, says Pop. Tourism remains a bright spot, as arrivals continue to grow.

Could the election of Donald Trump halt the quiet rise of South Asia? Trump wants to bring blue collar jobs back to the States and penalize American companies that manufacture overseas. Some are sanguine, though. “We do not believe that these companies will move production back to their home countries,” says East Capital’s Pop, reasoning that the spread between wages in the West and in markets like Bangladesh is too big to realistically think about moving these jobs back.

Another threat is the rising price of oil. Crude prices have risen by about 50% from their 2016 lows, which isn’t great news for all three countries, as they’re all net importers of the black stuff. Higher oil prices can cause higher inflation, a hot button issue in lots of developing countries, and bigger trade deficits. Pop argues that higher oil prices can also be a positive given the huge number of South Asians work employed in the oil-rich Gulf nations. A rosier economic outlook in these countries boosts the flow of remittances back to workers’ home countries.

Back in August, Barron’s Asia recommended readers buy three Pakistan blue-chipsahead of the country’s inclusion in the MSCI Emerging Markets index. They’ve risen by 20% on average and now trade near recent historical peaks on a price-to-earnings basis. In other words, they look expensive. We’ve found two new overlooked Pakistani stocks investors should consider, as well as picks for Bangladesh and Sri Lanka.

PAKISTAN

Oil & Gas Development Co

In August we tipped downstream firm Pakistan State Oil (PSO.PK), which has since risen 10%. It’s worth hanging onto that stock, but we’d add upstream exploration player Oil & Gas Development (OGDC.PK) to the mix too.

Shares in the Islamabad-based company have powered up 45% in the last year, and could rise by a further 30%. Oil & Gas Development will benefit from any further recovery in oil prices, which have roughly doubled since hitting their nadir last February. Earnings per share should rise by 17% in full-year 2017 and 20% in full-year 2018.

Oil & Gas Development trades at eight times forward earnings, which is toward the higher end of its historical valuation. That multiple is more compelling than exploration peer Pakistan Petroleum (PPL.PK), however, which trades at 10 times next 12 months’ earnings.

Oil & Gas Development also pays a 3% dividend.

DG Khan Cement

Lahore’s DG Khan Cement (DGKC. PK) is one of the country’s largest cement producers, with a capacity of more than four million tons a year. The stock also makes a good foundation for a Pakistan portfolio.

The firm should benefit from billions of dollars of new infrastructure in the South Asia country, much of it coming courtesy of investment from China. At the end of December, the countries jointly announced a $14 billion dam project close to DG Khan’s HQ in northern Pakistan. The dam will need about a million tons of cement.

Shares in the company have returned a solid 50% over the last year. DG Khan’s valuations looks a bit less stretched than that of rival Lucky Cement (LUCKY.PK), which we told investors to pour into their portfolio over summer. DG Khan trades at 10 times forward earnings, compared to Lucky’s 16 times. Its dividend yield of 2.6% is also bigger than its rival. Brokers think DG Khan can rise by as much as 25%.

BANGLADESH

BRAC Bank

BRAC Bank is one of Bangladesh’s biggest lenders, specializing in credit to small-to-medium-sized businesses. More than a third of the country’s entire SME loan book goes through BRAC, according to estimates.

Some of BRAC’s strengths include its large retail and ATM network, while the bank’s also well-positioned to comply with Basel III requirements within the next couple of years. Analysts think BRAC is unlikely to have to raise more capital and dilute investors as a result.

The most exciting aspect of the stock, however, is its mobile payments platform. Bangladesh is one of the world’s fastest-growing markets in the use of mobile payments, and BRAC’s bKash platform has the vast majority of market share, with 17 million users. The platform’s been profitable since 2014.

In the last year BRAC Bank’s shares have returned over 40% and the stock also yields about 4%. BRAC is thinly covered by sell-side analysts, but recent target price estimates suggest the stock could rise by almost 15% this year.

SRI LANKA

John Keells Holdings

Colombo’s John Keells Holdings (JKH.LK) is Sri Lanka’s top conglomerate, with interests spanning transport, food, property and plantations. It’s also the biggest component of the local index, at about 8% of market capitalization. The shares could rise by 15% in the next year.

The shares haven’t performed well of late, though. John Keells has slipped almost 3% in the last year, compared to an almost 20% rise in Sri Lanka’s benchmark stock index. Catalysts for a turnaround include new consumer offerings in underpenetrated areas like ice cream and soda. John Keells is also bidding to operate a proposed new container port on the island.

The shares look quite cheap at 12 times forward earnings, compared to their five-year average of 16 times. Another option is rival conglomerate Hemas Holdings (HEMS.LK), but the stock trades at a chunkier 15 times next 12 months’ earnings. John Keells also pays a 3% dividend.

Email: daniel.shane@barrons.com

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excellent.jpg
 

El Sidd

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Well it's logical.

While India has become stagnant and monotonous.

Its neighbours offer the most powerful returns plus the added emphasis on it.

I have been saying for past 5 years. Invest now in Pakistan but it was never the terrorism that halted it. It was and pretty much today as well is corruption.

Economic terrorism. Get used to this as well as the term cyber terrorism.

You heard it from a Pakistani if anyone asks.
 

duhastmish

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i believe srilanka and nepal host lot of potential. which is untapped.

pakistan is nowhere close right now but goodluck.
 

Tshering22

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i believe srilanka and nepal host lot of potential. which is untapped.

pakistan is nowhere close right now but goodluck.
Nepal and Bhutan can have free access to all of our port cities. Bangladesh already has its ports.

In fact, cargo and logistics companies are already establishing 'dry' in-land ports in UP-Nepal border areas as well as with Bangladesh.

Integrating BIMSTEC economies is good in the future.

As for 'forget India', I don't think that is practically possible, unless the investors are not very ambitious.
 

Loafer

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Well it's logical.

While India has become stagnant and monotonous.

Its neighbours offer the most powerful returns plus the added emphasis on it.

I have been saying for past 5 years. Invest now in Pakistan but it was never the terrorism that halted it. It was and pretty much today as well is corruption.

Economic terrorism. Get used to this as well as the term cyber terrorism.

You heard it from a Pakistani if anyone asks.
India offers one of the safest, stable, consistent and good returns haven in the world where large cash can be parked. This is evident by India being the largest FDI receipent in the world.

http://bwdisrupt.businessworld.in/a...illion-FDI-Inflows-In-2016/26-05-2017-118958/

Pakistan or Bangladesh might have a couple of hot stocks, that's it. No sane investor would remain long term or any sane fund manager would invest pension or insurance funds in other South Asia. He will be guilty of screwing many oldies.
 

PAKISTANFOREVER

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Forget India. Investors looking for the next big thing should look to its South Asia neighbors instead – Pakistan, Bangladesh and Sri Lanka.

With a combined 390 million people, the three countries represent what Morgan Stanley chief global strategist Ruchir Sharma calls “the quiet rise of South Asia” as opposed to India which has been “flattered by spasms of hype for years”. While overshadowed by their larger neighbor, the trio is enjoying fast-paced growth, embracing much needed reforms, and look set to enjoy a demographic dividend over the long term. “A substantially higher economic growth rate than in many other economies globally, coupled with fantastic demographics that will continue supporting growth for many years ahead”, East Capital fund manager Adrian Pop tells Barron’s Asia. The Stockholm-based firm manages nearly EUR3 billion in frontier markets.

Pakistan is the flag bearer of the positive changes taking place in the South Asian nations. Since coming to power five years ago, Prime Minister Nawaz Sharif has got inflation under control, cut the budget deficit and reined in the current account deficit. But more importantly, terrorism finally appears to be on the back-foot given more assertive action by the army. Chinese investment has also poured in: $50 billion will be spent on new roads, transport links and energy projects. “More power capacity is key for Pakistan to move to an even higher economic growth rate,” says Pop. That will benefit stocks in materials and energy. In December, the Pakistan Stock Exchange sold 40% of itself to consortium of Chinese investors.

The Karachi stock index is up by about 50% since the start of last year, propelled by index compiler MSCI’s decision to bump up the country to emerging markets status. That will bring in hundreds of millions of dollars from passive funds into the Pakistani benchmark. The rally in stocks has arguably left the market looking a little pricey as the KSE 100 index trades at over 12 times earnings, its heftiest valuation since late 2009. That’s still about a 15% discount to the MSCI emerging markets index, however, plus Pakistani stocks yield an attractive 4%-plus dividend.

Bangladesh’s rise has so far been more tempered. The country, which split from Pakistan in the early 1970s, benefits from a growing working age population and rising labor costs elsewhere in Asia. Garment manufacturing for Western clothing companies has increasingly moved from China to places like Bangladesh, where wages are lower. The government’s also investing billions in upgrading the country’s patchy power supply, which will address energy shortages and boost manufacturing.

Still, foreign participation in Bangladesh’s stock market is small. HSBC estimates foreigners make up only 2% of the Dhaka stock index’s market cap. The market does however look quite cheap on a historical basis, trading at 15 times trailing earnings. Return on equity, or profit generated as percentage of shareholder equity, is high at almost 20%.

Sri Lanka’s more understated still. The economy could slow in the short-term after an International Monetary Fund bailout in 2016 prompted by a huge budget deficit. Some of the reforms to balance the budget, like higher value-added taxes, will probably hit consumption. The government’s also been prodded to reform and privatize state-owned enterprises. “We view these measures as necessary for a healthier and more sustainable macro environment,” even if growth suffers in the meantime, says Pop. Tourism remains a bright spot, as arrivals continue to grow.

Could the election of Donald Trump halt the quiet rise of South Asia? Trump wants to bring blue collar jobs back to the States and penalize American companies that manufacture overseas. Some are sanguine, though. “We do not believe that these companies will move production back to their home countries,” says East Capital’s Pop, reasoning that the spread between wages in the West and in markets like Bangladesh is too big to realistically think about moving these jobs back.

Another threat is the rising price of oil. Crude prices have risen by about 50% from their 2016 lows, which isn’t great news for all three countries, as they’re all net importers of the black stuff. Higher oil prices can cause higher inflation, a hot button issue in lots of developing countries, and bigger trade deficits. Pop argues that higher oil prices can also be a positive given the huge number of South Asians work employed in the oil-rich Gulf nations. A rosier economic outlook in these countries boosts the flow of remittances back to workers’ home countries.

Back in August, Barron’s Asia recommended readers buy three Pakistan blue-chipsahead of the country’s inclusion in the MSCI Emerging Markets index. They’ve risen by 20% on average and now trade near recent historical peaks on a price-to-earnings basis. In other words, they look expensive. We’ve found two new overlooked Pakistani stocks investors should consider, as well as picks for Bangladesh and Sri Lanka.

PAKISTAN

Oil & Gas Development Co

In August we tipped downstream firm Pakistan State Oil (PSO.PK), which has since risen 10%. It’s worth hanging onto that stock, but we’d add upstream exploration player Oil & Gas Development (OGDC.PK) to the mix too.

Shares in the Islamabad-based company have powered up 45% in the last year, and could rise by a further 30%. Oil & Gas Development will benefit from any further recovery in oil prices, which have roughly doubled since hitting their nadir last February. Earnings per share should rise by 17% in full-year 2017 and 20% in full-year 2018.

Oil & Gas Development trades at eight times forward earnings, which is toward the higher end of its historical valuation. That multiple is more compelling than exploration peer Pakistan Petroleum (PPL.PK), however, which trades at 10 times next 12 months’ earnings.

Oil & Gas Development also pays a 3% dividend.

DG Khan Cement

Lahore’s DG Khan Cement (DGKC. PK) is one of the country’s largest cement producers, with a capacity of more than four million tons a year. The stock also makes a good foundation for a Pakistan portfolio.

The firm should benefit from billions of dollars of new infrastructure in the South Asia country, much of it coming courtesy of investment from China. At the end of December, the countries jointly announced a $14 billion dam project close to DG Khan’s HQ in northern Pakistan. The dam will need about a million tons of cement.

Shares in the company have returned a solid 50% over the last year. DG Khan’s valuations looks a bit less stretched than that of rival Lucky Cement (LUCKY.PK), which we told investors to pour into their portfolio over summer. DG Khan trades at 10 times forward earnings, compared to Lucky’s 16 times. Its dividend yield of 2.6% is also bigger than its rival. Brokers think DG Khan can rise by as much as 25%.

BANGLADESH

BRAC Bank

BRAC Bank is one of Bangladesh’s biggest lenders, specializing in credit to small-to-medium-sized businesses. More than a third of the country’s entire SME loan book goes through BRAC, according to estimates.

Some of BRAC’s strengths include its large retail and ATM network, while the bank’s also well-positioned to comply with Basel III requirements within the next couple of years. Analysts think BRAC is unlikely to have to raise more capital and dilute investors as a result.

The most exciting aspect of the stock, however, is its mobile payments platform. Bangladesh is one of the world’s fastest-growing markets in the use of mobile payments, and BRAC’s bKash platform has the vast majority of market share, with 17 million users. The platform’s been profitable since 2014.

In the last year BRAC Bank’s shares have returned over 40% and the stock also yields about 4%. BRAC is thinly covered by sell-side analysts, but recent target price estimates suggest the stock could rise by almost 15% this year.

SRI LANKA

John Keells Holdings

Colombo’s John Keells Holdings (JKH.LK) is Sri Lanka’s top conglomerate, with interests spanning transport, food, property and plantations. It’s also the biggest component of the local index, at about 8% of market capitalization. The shares could rise by 15% in the next year.

The shares haven’t performed well of late, though. John Keells has slipped almost 3% in the last year, compared to an almost 20% rise in Sri Lanka’s benchmark stock index. Catalysts for a turnaround include new consumer offerings in underpenetrated areas like ice cream and soda. John Keells is also bidding to operate a proposed new container port on the island.

The shares look quite cheap at 12 times forward earnings, compared to their five-year average of 16 times. Another option is rival conglomerate Hemas Holdings (HEMS.LK), but the stock trades at a chunkier 15 times next 12 months’ earnings. John Keells also pays a 3% dividend.

Email: daniel.shane@barrons.com

Comments? E-mail us at asia.editors@barrons.com

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China has ALREADY invested in at least $61 billion in Pakistan. With many more billions set for investment in the coming years and decades. That's what ultimately REALLY matters. We are doing brilliantly well in this regard.
 

Levina

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Good article.
I am not undermining the achievements of the countries neighboring India but then India has a big role to play in the success of atleast 2 of these countries.
Investors looking for the next big thing should look to its South Asia neighbors instead – Pakistan, Bangladesh and Sri Lanka.
This got me thinking.
Its like buying a big floor lamp and you seem to have bought everything of it except this >>>

upload_2017-8-22_16-3-49.png



I hope you got the drift of it. :)
 

kaykay

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Well in 2016, India attracted 63 billion USD in FDI. More than any country in the world. 'Forget India' is simply not possible....this year FDI is expected to be even greater.
 

Khan_21

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https://qz.com/728382/move-over-india-pakistan-is-the-hottest-equity-market-in-south-asia/

Move over, India. Pakistan is the hottest equity market in South Asia

The BRICS grouping is passe and the top emerging markets are losing sheen. Brexit has battered stocks world over and currencies across economies are weakening.

In times like these, guess what’s working for the global equity markets? Pakistan.

The south Asian nation, mostly in the news for terrorism and political violence, has beaten major Asian economies this year in stock market performance. In 2016, Pakistan’s benchmark equity index, the KSE 100, has been one of Asia’s best performing. In fact, it is the fifth-best performing stock index globally. Bloomberg even referred to Pakistan as an Asian “tiger,” in a report.

In June, the American stock index firm MSCI included the KSE 100 in its emerging markets index, which represents 10% of the world’s market capitalisation.

At the same time, the MSCI did not include China’s mainland A shares, which are traded in the local currency renminbi. One reason for this exclusion is that China’s economy hasn’t exactly been firing up, thanks to a drop in manufacturing.

Here’s how the KSE 100 compares with another index: Since the beginning of 2016, till July 11, India’s S&P 100 index has gained 6.67%, while KSE 100 is up almost 17%.

On a global level, the KSE 100 has left many indices behind. The data is as of July 11:

The rise of Pakistan’s stock markets
The Karachi Stock Exchange (KSE)—also known as the Pakistan Stock Exchange—has stood out in recent years, despite a troubled political and security environment. But not all its listed companies are traded on it—in fact, less than a fourth were actively traded in 2014. Nonetheless, improving political and financial stability is helping revive Pakistan’s stock markets.

There’s also been some support from a 2012 government amnesty programme, which allowed investors to pour money into shares until June 2014 without their source of funds being questioned. This doubled the average traded volume on the KSE.

Launched in 1988, the MSCI emerging markets index first included Pakistan in 1994. In 2002, the KSE was shut down due to a stock market crash. Six years later, in 2008, it was temporarily closed following the global financial crisis. Faced with such shutdowns, MSCI dropped Pakistan out of the emerging markets index till this year.

Over time, investors have regained confidence in the country’s equity markets.

“That’s an interesting lesson from Pakistan… You had to have a period of time where investors got comfortable with the idea that they wouldn’t close the market again,” Adrian Mowat, managing director and chief Asian and emerging market equity strategist at J P Morgan told CNBC in June.

What’s attracting investors?
Investment in infrastructure, coupled with aggressive government spending, is making Pakistani markets attractive to investors. Further stability in politics will only help.

“PSX (Pakistan Stock Exchange) is far ahead (compared to peers) in terms various performance indicators—valuations, dividend yield, corporate profitability—and has traditionally been traded at a discount to regional and emerging markets. This discount was attributable to lower growth trajectory and higher political and security risk,” said Zafar Masud, a member of the monetary policy committee and a member of the board of directors at the State Bank of Pakistan.

“There is a view that this discount will narrow, for all the right reasons,” Masud added. He said economic growth had picked up, too, with the improving security and political situation.

Meanwhile, the Chinese have announced large investments in the country. When China’s $46-billion investment to build a China-Pakistan Economic Corridor actually happens, it will boost trade and make critical infrastructure, such as power, easily available to individuals and industries alike.

Additionally, a growing middle-class is expected to fuel demand. Pakistan’s GDP grew at 4.2% in fiscal 2015; in fiscal 2016, it is expected to be 4.5%.

As Ruchir Sharma, Morgan Stanley’s head of emerging markets and chief global strategist indicates in his book, The Rise and Fall of Nations, three countries that have traditionally been economic “laggards”—Bangladesh, Sri Lanka, Pakistan—are now “contributing to the quiet rise of South Asia.”

Inflation in Pakistan has dropped below 3%, the government’s budget deficit has seen a commendable easing from 8% to 5% of the GDP, and current account deficit is now at 1% of the GDP, which Sharma calls “the safe zone.”

No wonder, its stock market is booming.
 

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