Pakistan's US-Listed ETF Is Soaring With These Six Stocks Up Over 100% 1

Pakistan’s economy has been improving

Pakistan’s economy has been showing improvement on the back of the China-Pakistan Economic Corridor.  Poverty, as gauged by the share of population below the poverty line, has reduced from 64.3% in 2001 to 29.5% in 2014. The standard of living has also been improving in this South Asian (VPL) (AAXJ) (EPP) nation. Pakistan’s interest rates are at their lowest level in more than 30 years and companies’ earnings are set to benefit from tax cuts as the government lowered corporate tax to 30% from 35% in 2015.

KSE100 closed above 50,000 for the first time in history

Moreover, the January 2016 integration of the Karachi, Lahore, and Islamabad stock exchanges into a single Pakistan Stock Exchange bode well for the country’s capital markets. The KSE100 index has generated 52.81% return over the past 1 year. The Karachi Stock Exchange 100 Index is a major stock market index which tracks the performance of the largest companies by market capitalization from each sector of Pakistani economy listed on The Karachi Stock Exchange. The index reached an all-time high of 50,192.36 on January 26, 2017.

Stocks of companies such as International Steels, ICI Pakistan, SUI Northern Gas Pipeline, Honda Atlas Cars Pakistan, Millat Tractors, and The Bank of Punjab are up over 100% over the last 6 months.

TickerNameWeightSharesPrice6 Month Total Return
KSE100 Index Constituents
ISL PA EquityInternational Steels Ltd1.06174.00155.50265.71%
ICI PA EquityICI Pakistan Ltd0.6113.851133.80137.20%
SNGP PA EquitySUI Northern Gas Pipeline0.89221.98102.96126.88%
HCAR PA EquityHonda Atlas Cars Pakistan Ltd0.9028.56801.76103.06%
MTL PA EquityMillat Tractors Ltd0.9822.151130.45102.77%
BOP PA EquityBank of Punjab/The0.43652.2216.87101.07%


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Trading opportunity?

Market analysts see a trading opportunity in buying the Global X MSCI Pakistan ETF (PAK) now and holding it until May 2017 when the MSCI officially includes it in its Emerging Market Basket.

The PAK ETF is dominated by the financial services, basic materials, and the energy sector which command 32%, 28%, and 18% of the ETFs portfolio, respectively. Top 10 holdings of the Global X MSCI Pakistan ETF (PAK) include:

Valuations support investment in Pakistani equity

On the valuations front, Pakistani equity is still far cheaper than broad emerging markets (EEM).

Forward valuations (forward price-to-equity) for the KSE100 index currently trading at 10.96 against the broad MSCI Emerging Market index’s forward valuation of 12.4. Over the past 6 months, we’ve seen valuations for Pakistan rising (evident in the rise in the Forward P/E curve for the KSE 100), as charted above.

Moreover, valuations still stand at attractive levels. Earnings are rising while price remains low.

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