Pakistan election outcome positive for investors, says Sweden’s Tundra

Mattias Martinsson, deputy CEO, CIO and portfolio manager at Tundra Fonder in Sweden, which offers a Pakistan equity fund, has said the election outcome in Pakistan this past week is a significant boost for investors.

Martinsson said that while the PML-N party’s win was expected, its margin was not – which has further provided succour for those invested in the country.

The roughly 46% of seats in the lower house that PML-N won means that effectively there is a good chance they can form a majority by themselves, because by tradition independent parliamentarians tie themselves to the biggest party by seats.

“The election was unexpectedly calm, with few attacks, and the highest turnout since 1970 (60% versus 48% in 2008). A high turnout combined with a strong win for PML-N reduces the risk for questions around the results,” Martinsson said.

The local stock market will now shift focus to the need for a new agreement with the IMF. The conditions are positive, given the reputation of the PML-N party in economic matters and the strong results in the election. These should make negotiations easier, Martinsson said.

The stock market is currently valued on a P/E of 7.5x for 2013, which is a 40%-50% discount compared to comparable larger markets outside the Gulf states.

It is important to remember, Martinsson added, that foreign investor participation, despite increased activity, is still low – it is up from 10% to 20%-25% in recent weeks, but still significantly lower than, say, Nigeria’s 50%-60%. The market’s daily volumes of $70m-100m remain well below the historical high of $500m seen in 2006-8. However, coupled with the first ever democratically driven change of power and an unexpectedly positive outcome from the perspective of the markets, the level of foreign investor interest is unlikely to decrease.

Pakistan remains a market of risks, such as the negotiations with the IMF stalling. However, over the long term it could be that the stock market is on its way to a proper breakthrough, Martinsson said.

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