Investors should forget India and instead get benefits from the ‘quiet rise’ of Pakistan along with Sri Lanka and Bangladesh, according to an American financial magazine.
“Forget India. Investors looking for the next big thing should look to its South Asia neighbours instead – Pakistan, Bangladesh and Sri Lanka,” the Barron’s Asia said in an article. According to the article, the three countries with a combined 390 million people 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 neighbour, 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 article mentions that 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 per cent of itself to consortium of Chinese investors. The Karachi stock index is up by about 50 per cent 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.
At the end of December, the countries jointly announced a $14 billion dam project close to DG Khan. The dam will need about a million tonnes of cement. Shares in the company have returned a solid 50 per cent over the last year. DG Khan’s valuations looks a bit less stretched than that of rival Lucky Cement (LUCKY.PK), which investors were told 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 2.6pc is also bigger than its rival. Brokers think DG Khan can rise by as much as 25 percent.