The (Passed) Winds of Change: Part 1

Posted on 01.22.07 by Tanveer Sultan @ 3:30 pm    

The reports by the agencies below that came around mid-December have been issued pertaining to our present economic condition and a look into the future. SBP primarily touted foreign investments for last half year, drooling from the prospects of privatizations in the couple of years to come. And, as usual, there was some news directing the path of KSE. Let’s have a brief look on the reports first.

REPORT BY GOLDMAN SACHS: Issued in late 2006, the report includes Pakistan amongst the world’s eleven fastest growing economies. In 2005 the bank had included Pakistan in the same stead as an emerging new market. Now, GS claims Pakistan and the other 10 countries are capable of playing a vital role in global leadership. By the way, the other 10 countries are:
a) Mexico
b) Korea
c) Iran
d) Turkey
e) Philippines
f) Nigeria
g) Indonesia
h) Egypt
i) Bangladesh, and;
j) Vietnam.

GS claims that in the foreseeable future these nations would be multifaceted leaders at global level and hence will play a vital role in the world economy. The report goes on to state that in the next 45 years Pakistan’s growth will be 6.8 percent where by 2050 Pakistan’s per capita income would be US$ 7,753 from US$ 737 in 2005. Furthermore, if human resource creation and development and political conditions coupled with pragmatic macroeconomic policies being properly implemented, GDP growth can be greater than 8 percent, perhaps even outrunning China. Foreign investment would be at magnificent levels.

STATE BANK OF PAKISTAN: Our central bank, in its annual disclosure, stated the foreign investment: direct and portfolio from July to November 2006 in the following terms:

- Foreign investment increased by 105.26%.
- Foreign investment form July to November 2006 was US$ 2.1 billion as compared to US$ 1.2 billion for the same period in the preceding year.
- Portfolio investment, which was US$ 270.9 million in 2005, was US$ 623.8 million in 2006.
- Foreign direct investment (FDI) was US$ 959.1 million as compared to US$ 1,475.2 million the period under question.
- Portfolio investments were worth US$ 516.10 million, a 53.81% increase.
- The top three sectors attracting investments were (1) telecommunications, (2) oil and gas exploration and (3) financial.
- The United States (USA) was the largest investor with US$ 666.1 million with England (UK) coming in second with US$ 640 million.
- The report also claims that if the situation prevails, by Feb. 2007 FDIs should be within touching distance of the psychological barrier (and mouthwatering prospect) of US$ 5 billion.

REPORT BY MERRILL LYNCH: I believe this is the report that had the most impact. Judge for yourself. The salient features are:
- Return (ROI) in Pakistan stock markets for 2007 would be 27%. It would be 18% for Indian stock markets for the same period.
- In 2008, the position would be the same, with returns for the Pakistani market at 17% vis-à-vis 16% for Indian exchanges.
- Oil sector would be the largest gainer followed by the banking sector.
-ML recommends a Buy for Pakistani stock markets and SELL for Indian.

Sit tight, more to follow. In the second part of this article, I shall comment on other disclosures attempt to play the part of a financial Nostradamus by telling you what will be, which shall be followed by equity analyses on three companies to keep an eye on (for better or worse, wait and see) into the half year.