Nuclear weapons, Taliban strongholds, political assassination and turmoil — you might think investors would run away from Pakistani stocks.
Yet the Pakistani stock market is Asia's top performer this year, up almost 10 percent after a 40 percent increase last year. Over the last five years, economic growth has averaged 6 percent.
While most institutional investors have ignored this volatile country, Templeton Asset Management's top emerging markets fund manager, Mark Mobius, who manages nearly $40 billion, thinks there could be further gains ahead.
With forward price-earnings ratios of less than 10, Mobius told Reuters, Pakistani stocks were attractively priced He has invested more than 5.3 percent of Templeton's Asian Growth Fund's portfolio in the country.
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"It's working out for us well,” Mobius said.
In his opinion, a pending new government is likely to continue the previous administration's pro-business policies. U.S. ally Pervez Musharraf lost the most recent vote, although it’s less clear when he might step down.
"There are going to be a lot of disputes surrounding the situation there,” Mobius continued. "There's a great deal of risk in Pakistan. People will be very cautious.”
U.S. investors looking to follow Mobius, who has $400 million invested in Pakistan, can buy several American Depositary Receipts (ADRs) of Pakistani companies on U.S. exchanges.
One of the fund’s holdings is Pakistan Telecom. Other available ADRs are electricity provider Hub Power Co.; MCB Bank Ltd., the largest bank in Pakistan; United Bank Ltd.; and Pakistan's Oil & Gas Development Co., which is also in Mobius’ portfolio.
Mobius expects energy stocks throughout Asia to do well. He thinks oil prices will stay around $100 a barrel, largely because of soaring demand in China and India.
"The swing factor (for oil) is what is happening in China and India,” said Mobius, not the U.S. or Western economies.
He holds China-based oil company Petrochina (available in the US as an ADR) and India's Oil & Natural Gas Corp.
Bullishly, Mobius borrowed money to meet shareholder redemptions as markets dived in January.
While Asian stocks had dropped as much as 20 percent at one point in January, they recovered more than half of those losses within the next month.
"The values were there and we thought there would be a recovery. It's advantageous for existing shareholders as we are not forced to sell down at unreasonable prices,” he said.
"We don't see any huge problem in terms of a big bear market continuing in Asia,” Mobius said. "We think there will be a recovery.”
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