MSCI EM changes good for Pakistan – Tundra

Mathias Althoff, portfolio manager at Tundra Fonder in Stockholm, has reacted to the MSCI upgrade of Pakistan to emerging market status as a positive step for the local stock market, over both the short and long terms.

In a letter to investors, Althoff said that over the past five years that the Tundra Pakistan fund has been in the market, a key consideration in the investment case has been that many have tended to place excessively low expectations on the country.

“As a wise Pakistani entrepreneur once said: 95% of what is written about Pakistan concerns the 5% that is negative,” Althoff noted.

The country does face ongiong challenges, but MSCI’s decision should be placed above and beyond the short term impact on fund flows from international investors, he added. What is really important is the signal this sends to investors about the perception of Pakistan and the ongoing integration of its capital markets and its broader economy into the wider global economy.

“Increasing integration means increased understanding and in the long term we believe this will lead to valuations of Pakistani companies nearing those of other Asian equity markets that are already classified as emerging market.”

According to multiples ahead of  the first opening of the market following the MSCI announcement, Althoff said the MSCI Pakistan index was valued at 9.9x annual earnings, against 14x for MSCI EM, 22.1x for MSCI India, 21.9x for MSCI Philippines, 19.1x for MSCI Thailand, 17.6x for MSCI Indonesia and 18.1x for MSCI Malaysia.

Although the MSCI decision to upgrade Pakistan will not be reflected in its indices until next year, it will impact local equities positively over the coming 12 months, Althoff concluded.



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