Pakistan’s equity market has been consistently beating China and India’s markets over the last 5 years.
Even this year, Pakistan’s stock exchange outperformed India and China’s stock exchanges. The difference was almost 2 to 1 when compared to China’s stock exchange performance this year alone.
This comes as a surprise as Pakistan is a country known to be plagued by frequent terrorist attacks and political instability. Pakistan also lags behind India and China in GDP growth rates and unemployment for example.
Why does Pakistan’s stock exchange see a much larger investment coming in compared to India and China?
Reasons for Outperforming our Neighbors
All things considered China and India are comparatively much stable markets. A key reason for higher stocks is due to foreign investments that Pakistan is receiving from a few sources. China’s markets did not receive any foreign capital due to the return of strict government policies, resulting in decreased investor confidence in the country. Slow progress with reforms in India have also hurt their growth rate.
A reason why terrorist attacks did not affect stock exchange performance is that they don’t directly affect them unless they are disruptive to trade. Terrorist attacks in Pakistan do not target trade. Secondly, Pakistan used to be a frontier market during the last 5 years and was therefore favored by the numbers game.
Market reform efforts by Pakistan were appreciated by several investors including World bank, which invested $1 billion as a vote of confidence. A couple of domestic acquisitions from foreign suitors like the acquisition of Karachi’s K-Karachi by Shanghai Electric Power Co. were also supportive of market reform efforts by Pakistan. These factors have helped Pakistan attract foreign exchange and attention as well.