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Following liberalization measures in the 1990s, Pakistan’s stock market has modernized its operational architecture. The country offers attractive valuations relative to other emerging markets plus an economy driven by strong domestic consumption.

The Emerging Asia Pacific Capital Markets: Pakistan

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Investing in Pakistan offers access to the fifth-largest population in the world, and the country’s resilient domestic consumption stands out in a global economy affected by COVID-19. The benchmark KSE-100, which trades at a forward P/E of about 7x, is one of the most attractively valued among emerging markets indices, and top-tier Pakistani companies are regularly held up as some of the best in the region on profitability and investor relations.

Capital market development in Pakistan accelerated in the 1990s on a combination of privatization and other measures to liberalize the economy. Some steps included introducing a central depository for securities and opening the market to international investors, who now own about 25% of the equities free float and are treated at par with domestic investors.

The operational architecture at the Pakistan Stock Exchange (PSX) allows for electronic trading, clearing, and settlement, including that of corporate debt instruments and government securities. The PSX was formed after the merger of the Karachi, Lahore, and Islamabad bourses, and today it is majority owned by a consortium of Chinese exchanges. This has started to influence the market, going by the recent acquisition of a new Chinese trading platform and the push on innovation. In 2020 on the PSX, despite the challenges posed by the coronavirus pandemic, IPOs were oversubscribed, exchange-traded funds were launched for the first time, and the trading regime saw the introduction of index halts and wider circuit breakers.

Although Pakistan continues to suffer from a large perception gap, this dynamic is improving gradually, and the nation has several reasons for an optimistic outlook. These include technological and product innovation, which can fast-track an increase in retail investor participation (at present, only about 0.1% of the population invests in capital markets). As Pakistan’s young population quickly digitizes, the capital markets can benefit significantly from a step increase in retail investors.

This article is from "The Emerging Asia Pacific Capital Markets: Challenges and Opportunities," published by CFA Institute Research Foundation.

About the Authors

Mohammad Shoaib
Mohammad Shoaib CFA

Mr. Mohammad Shoaib, CFA is the founding CEO of Al Meezan Investment Management Ltd., the first and the only full-fledged Shariah Compliant Asset Management Company in Pakistan. Al Meezan is also the largest asset management company in Pakistan managing about USD 950 million on behalf of clients. Shoaib has over 28 years of experience in managing investment portfolios. Shoaib holds an MBA degree from IBA besides being a Chartered Financial Analyst (CFA) charter holder. Shoaib has been a speaker at various conferences on Islamic Asset Management in Middle Eastern and Far Eastern countries. He has also been featured in CFA Magazine with reference to his contribution to Islamic asset management, corporate governance and volunteer leadership roles.

Raza Jafri, CFA
Raza Jafri CFA

Raza Jafri, CFA, is head of equities at Intermarket Securities Limited. He has more than 13 years of experience in equity research and sales in Pakistan and specializes in covering commercial banks. Mr. Jafri serves on the board of directors of CFA Society Pakistan. He holds a bachelor of science degree (honors) in finance and accounting from the Lahore University of Management Sciences.

Sateesh Balani, CFA
Sateesh Balani CFA

Sateesh Balani, CFA, is head of research at Providus Capital and possesses a decade of diversified finance- and investment-related experience. Previously, he was head of research at HBL Asset Management Limited (AML), where he was part of the investment committee, managing fixed income, equity, and asset allocation portfolios. Before joining HBL AML, he was responsible for making feasibilities and analyzing potential business ventures at Engro Corporation and its energy holding company. Mr. Balani also worked at Elixir Securities in equity research covering the energy and industrial sectors. He holds an MBA and a bachelor’s degree from the Institute of Business Management, Karachi. Mr. Balani serves on the board of CFA Society Pakistan.