AKD Investment Management on Pakistan’s growing economy

Transcript

Pakistan’s economy is said to be getting back on track, with overall macro-economic conditions in the country improving. World Finance speaks to Imran Motiwala, Chief Executive Officer of AKD Investment, about what this means for investments in the country.

World Finance: Well Imran, Pakistan’s economy is said to be improving, but it is still at a crossroads – where the government may be forced to abandon its IMF programme. So economically speaking, what’s the situation on the ground today, and how does that impact investments?
Imran Motiwala: I see the most important part of the IMF programme for a country like Pakistan is the fiscal discipline that it brings with it.

While the government has a great deal of resolve to pursue this programme, it is essentially I think the most important aspect that investors are looking at. That fiscal discipline essentially brings a great deal of opportunities as far as the economy is concerned. And while we remain in that programme – provided that the government has that resolve – we believe that those opportunities will continue throughout the economy.

I think [Pakistan’s] overall economic performance still has a great deal of potential to yield very firm returns over the coming years

World Finance: How does the Pakistan capital market compare with other world markets?
Imran Motiwala: Essentially we try to compare ourselves more to competing regional markets; peer markets, as we would put them.

And essentially, we are still relatively cheap compared to our immediate peers, from a price earning point of view, from a dividend yield point of view. With a very firm earnings growth outlook in place. And essentially, I think it’s that attractiveness that has been able to gauge a number of foreign investors looking at Pakistan as a very serious investment avenue. And we hope to see that continue – provided, as we discussed earlier, that the economic reforms with the IMF programme remain intact.

World Finance: Foreign investors own over $3bn of Pakistani equities; so is the Pakistani market still the investment it has been over the previous years?
Imran Motiwala: Definitely. I think that Pakistan… it’s characterised as a frontier market. Obviously when investing in a frontier market compared to an emerging market, there are essentially certain risks involved in investment in such a market that investors assume. And that’s perhaps why they expect a premium return while investing in a frontier market.

And yes: the investment opportunities that we see in Pakistan are still very consistent, as far as our earnings growth are concerned. And I think the overall economic performance still has a great deal of potential to yield very firm returns over the coming years.

And if you compare how Pakistan as a frontier market has performed with other peer frontier markets, you’ll still see that it has very comfortably been able to outperform. And I think that Pakistan is still a very good destination for foreign money, and I believe that the returns will continue hopefully to outperform other frontier markets as well.

World Finance: Well the country does have its problems with political unrest; so how safe a place is it to invest?
Imran Motiwala: What we see in Pakistan today is something that we’ve been seeing for a number of years. It’s a developing democracy, it’s a developing country.

Essentially, people are still in the process of understanding their rights, speaking out about their rights. And we believe that the political opposition parties still have yet to play a role. But this is something that we’ve seen recently.

Needless to say, this unrest is a part of the risk of when you’re investing in a place like Pakistan. Essentially, we believe that the returns more than justify taking that risk.

The more important thing that we need to consider is that this political unrest that we are talking about is essentially taking Pakistan in the right direction: where every institution works within its domain, and hopefully have a more fruitful, and more importantly a more stable, democratic situation in Pakistan than we have today.

[Pakistan is] a developing democracy, it’s a developing country

World Finance: Well finally, what future trends do you foresee impacting the market?
Imran Motiwala: The number of uncertainties that we’ve seen in Pakistan – be it political, be it the war on terror. Essentially the economy has to some extent not been able to perform as well as we would have liked it to. And hopefully, stability on those fronts will not only yield much improved numbers as far as our companies are concerned. But the overall investment environment will improve as well, resulting in hopefully more money being invested in Pakistan from abroad, and giving a better local environment for investors as a whole.

We still believe that while these uncertainties have been incorporated into the prices of various stocks in the market today, these are I think the most important triggers that we’re looking at. I think that a successful IMF programme is something we need. And I think definitely we need another democratic government to fulfil its obligations from a governance point of view, and hand over its reins to the next democratic government.

Essentially, these are the triggers that we definitely have our eye on. And hopefully if we see some stability there, Pakistan as an investment avenue will continue to blossom.

World Finance: Imran, thank you.
Imran Motiwala: Thank you.