First Ever Pakistan ETF Debuts To Great Interest
Wednesday April 29, 2015
Summary
The launch of the ETF comes at a complicated time for the country. While Pakistan has some economic prospects, it's still considered a pre-emerging economy, and therefore, carries a great deal of uncertainty and instability. Not helping the country's prospects is its reputation as a harbor for terrorists.
Perhaps most encouraging for the fledgling nation is the news of China's planned $46B investment as part of the China-Pakistan Economic Corridor project. While the investment may or may not actually materialize, it's a huge opportunity for Pakistan to develop into true emerging market status. Pakistan's entire GDP is estimated to be only around $275B, so one can see what kind of impact that type of investment might have.
As far as the ETF itself is concerned, the MSCI Pakistan ETF benchmarks to the MSCI All Pakistan Select 25/50 Index which looks to provide exposure to the broad Pakistan economy using a minimum number of holdings - currently about 30. Its expense ratio of 0.88% actually feels pretty reasonable considering the potential costs of developing an investable asset from a frontier market. Other Middle East focused ETFs like the SPDR S&P Emerging Middle East & Africa ETF (NYSEARCA:GAF) typically have expense ratios in the range of 0.50% to 1.00%, so this ETF falls right in that range.
The question for most investors with regard to this ETF is, now that an option like this is available, does it mean it should be added to your portfolio. Based on the size and uncertainty of this economy as well as some of the political risks involved, this ETF is one of those investments that could eventually take off or end up worthless, but either way will require a great deal of patience. At this point, I wouldn't consider Pakistan to be worth anything more than just a tiny part of your portfolio, but if you're willing to take the risk, there is potential.
Pakistan's GDP is forecast to grow at an annualized rate of 4-5% for the next couple of years. The country's economy has benefited from falling oil prices, and inflation is finally starting to come down. Pakistan's budget deficit is slowly getting trimmed, and its stock market is trading at a discount compared to other frontier markets in the region. On data alone, it looks like a country that is worth at least considering for a small investment
Conclusion
Another thing to consider is that, as a brand new fund, it is very thinly traded and has little in the way of assets under management. With just a few trading days in the books, the ETF has, on average, about 30,000-40,000 shares traded daily and has just $1.5M in AUM. Therefore, traders and investors should be aware of the potential additional costs that could be associated with taking a position in this fund.
As the first ETF focusing on Pakistan, it should generate investor interest. While there is some evidence suggesting this could be a growing economy, the political uncertainty and influence of potential terrorist activity surrounding the country should limit this ETF to just a small portion of a broader portfolio.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
www.seekingalpha.com/article/3113346-first-ever-pakistan-etf-debuts-to-great-interest
www.etftrends.com/2015/04/investing-in-pakistan-theres-an-etf-for-that/
www.forbes.com/sites/trangho/2015/05/02/new-fund-screams-for-thrill-seeking-investors-who-can-look-past-issues-like-terrorism/
Wednesday April 29, 2015
Summary
- The MSCI Pakistan ETF is the first ETF to focus on this Middle Eastern country. Pakistan is the 6th largest country by population.
- Pakistan GDP is expected to grow 4% annually, and the country's deficit and inflation rate have been falling, indicating some promise as a frontier economy.
- China's potential investment of $46B could be a significant boon to an economy with a GDP of just $275B.
The launch of the ETF comes at a complicated time for the country. While Pakistan has some economic prospects, it's still considered a pre-emerging economy, and therefore, carries a great deal of uncertainty and instability. Not helping the country's prospects is its reputation as a harbor for terrorists.
Perhaps most encouraging for the fledgling nation is the news of China's planned $46B investment as part of the China-Pakistan Economic Corridor project. While the investment may or may not actually materialize, it's a huge opportunity for Pakistan to develop into true emerging market status. Pakistan's entire GDP is estimated to be only around $275B, so one can see what kind of impact that type of investment might have.
As far as the ETF itself is concerned, the MSCI Pakistan ETF benchmarks to the MSCI All Pakistan Select 25/50 Index which looks to provide exposure to the broad Pakistan economy using a minimum number of holdings - currently about 30. Its expense ratio of 0.88% actually feels pretty reasonable considering the potential costs of developing an investable asset from a frontier market. Other Middle East focused ETFs like the SPDR S&P Emerging Middle East & Africa ETF (NYSEARCA:GAF) typically have expense ratios in the range of 0.50% to 1.00%, so this ETF falls right in that range.
The question for most investors with regard to this ETF is, now that an option like this is available, does it mean it should be added to your portfolio. Based on the size and uncertainty of this economy as well as some of the political risks involved, this ETF is one of those investments that could eventually take off or end up worthless, but either way will require a great deal of patience. At this point, I wouldn't consider Pakistan to be worth anything more than just a tiny part of your portfolio, but if you're willing to take the risk, there is potential.
Pakistan's GDP is forecast to grow at an annualized rate of 4-5% for the next couple of years. The country's economy has benefited from falling oil prices, and inflation is finally starting to come down. Pakistan's budget deficit is slowly getting trimmed, and its stock market is trading at a discount compared to other frontier markets in the region. On data alone, it looks like a country that is worth at least considering for a small investment
Conclusion
Another thing to consider is that, as a brand new fund, it is very thinly traded and has little in the way of assets under management. With just a few trading days in the books, the ETF has, on average, about 30,000-40,000 shares traded daily and has just $1.5M in AUM. Therefore, traders and investors should be aware of the potential additional costs that could be associated with taking a position in this fund.
As the first ETF focusing on Pakistan, it should generate investor interest. While there is some evidence suggesting this could be a growing economy, the political uncertainty and influence of potential terrorist activity surrounding the country should limit this ETF to just a small portion of a broader portfolio.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
www.seekingalpha.com/article/3113346-first-ever-pakistan-etf-debuts-to-great-interest
www.etftrends.com/2015/04/investing-in-pakistan-theres-an-etf-for-that/
www.forbes.com/sites/trangho/2015/05/02/new-fund-screams-for-thrill-seeking-investors-who-can-look-past-issues-like-terrorism/
