Source: Reuters

By Sahar Ahmed

KARACHI, Feb 11 (Reuters) - Foreign investors who have stuck with Pakistan are clearly made of stern stuff as it heads towards an election on Feb. 18 that, while not a presidential poll, could put President Pervez Musharraf’s future in doubt.

While the world frets over a nuclear-armed Muslim nation that al Qaeda wants to destabilise and is still reeling from the assassination of opposition leader Benazir Bhutto, the investment community has largely held its nerve.

“Formation of a stable democratic government will be the most important event to consider,” said Mark Mobius, executive chairman at Templeton Asset Management Ltd.

“Investors are still keen on Pakistan and there has been no sharp withdrawal of capital from Pakistan despite the recent events as well as the financial turmoil across the world,” Mobius said. “In fact, markets in Pakistan have been fairly resilient.”

The Karachi stock market was among the best-performing markets in 2007, gaining more than 40 percent.

It has only lost 5.64 percent since Bhutto’s death on Dec. 27, even though she was regarded as the most popular Pakistani leader, the most progressive and the most friendly to the West.

“We went through a rocky period after Bhutto’s assassination, and what really came out since is that investors have not run away. They might have trimmed positions but they are now looking to make an entry at good valuations,” said Ahsan Chisty, head of international institutional sales at BMA Capital Ltd.

According to central bank data, from July 1 to Feb 7 there was a net outflow of $40 million from Pakistani stocks and government securities.

That coincided with one of the most turbulent periods in a country that the Economist and Newsweek magazines have called the most dangerous in the world.

ACQUIRED TASTE

Admittedly the size of foreign investment in Pakistan is relatively small. It is an acquired taste.

But for those with the stomach, an economy that has averaged 7 percent growth for the past three years and a corporate sector showing strong earnings growth are hard to resist.

“Overall the earnings of the corporate sector are reasonably robust,” said Nasim Beg, Chief Executive at Arif Habib Investments. “And as you’ve seen, the market, despite some serious issues, has not given way too much.”

The serious issues are not just political risk.

Many ordinary Pakistanis are very unhappy with the state of their economy.

Rising food and fuel prices are the biggest complaint. But there are also serious bottlenecks, notably in power and water, as well as serious educational challenges for the labour force.

Power cuts and gas shortfalls meant many parts of the country were without lighting and heating over a cold winter.

Even the capital, Islamabad, a city less used to hardship, has been suffering regular power outages every day, and the shortfall in electricity generating capacity will be greater come summer, when air conditioners get switched up high.

Yet, for all the negatives, investors saw opportunities.

“We are particularly interested in domestic consumption opportunities as we believe product under-penetration, rising incomes, increasing farm incomes and continued inward remittances will boost domestic consumption in the economy,” Mobius said.

“Direct and indirect beneficiaries of this trend in the investable universe are sectors such as autos, banking, oil marketing and telecom,” he said.

Shares in Indus Motor (INDM.KA: Quote, Profile, Research) rose 63.7 percent in calendar 2007, Pakistan State Oil (PSO.KA: Quote, Profile, Research) gained 38.3 percent while MCB Bank (MCB.KA: Quote, Profile, Research) showed an increase of 62.5 percent.

These companies are expected to report strong profits in coming weeks.

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Tags: economy, Elections, FDI, Government, Musharraf, Pakistan