On rumours of implosion in Pakistan,,,... the nonsense being spread..
After the Sep 11 attacks in USA the concerns regarding Pakistan
centered on
two main parameters:
1. Economic
2. Political
Economic
The main concern here was with regards to the fragile economic
situation
vis-à-vis the BOP, budget deficit, currency etc. The events of the
last few
days have clearly shown that if nothing else Pakistan may come out much
stronger economically speaking from this crisis. The country has
already
received debt write offs (Canada writing off USD 300mn) and more are
expected (total bilateral debt at USD 8-9bn out of which USA alone has
USD
3bn <USA can follow Canada and write off debt>); debt rescheduling of
Paris
Club seems a forgone conclusion, the IMF funds are coming in and the
country
is to start talks on the PRGF which basically is longer term funding to
the
tune of USD 2-2.5bn at concessional rates etc. So you see things are
improving economically for Pakistan at a much faster rate after the
country
wisely decided to side with the US on terrorism. Furthermore there is
also
some talk of the country getting preferential trade access and removal
of
trade quotas and restrictions; trade not aid is also the focus here.
The decision of the US to target financial assets of terrorist has
benefited
Pakistan's currency as it has appreciated by roughly 5% in the last
week to
10 days. The reason being that we have seen USD inflows coming back
into
the country as black money, drug money, Afghan money or whatever name
you
want to call flow back in as people panic and fear US action and
investigation into their accounts. The govt. has no problems with US
dollars coming back home; the currency remains firm, forex reserves
improve,
and every one is happy.
Thus, as is clearly evident from the above the Sep 11 events have
rather
ironically become a economic positive for Pakistan. The entire world
is
tripping over each other to provide aid, help, money and what have you
to
make sure that Pakistan remains safe, secure, and firmly on their side.
As
far as the Pak govt. is concerned they are more than happy to oblige!!
Political
The biggest concern here was with regards to the reaction internally
after
USA attacks on Afghanistan. Concerns here centered on response from:
1. Army
2. Civil Law and order
To tackle the Army issue we have seen the Chief Executive completely
change
the top brass of the Army. We now have a new DG ISI (the intelligence
agency much responsible for executing the Afghan policy), a new Chief
of
General Staff and a new Vice Chief of Army Staff. The ex-army
personnel
shown the door were reportedly more conservative in their views and may
have
had a slightly fundamentalist approach. The new servicemen who have
taken
their place besides being more moderate and balanced in their views
also
bring fresh blood and new decision making approach to give a new and
more
realistic direction to the country's Afghan policy and other defence
related
issues. With one stroke Musharraf has changed the face of the Army
from
being slightly fundamentalist prone to a now more moderate and western
feel;
someone with whom the West can do business. Also, the changeover has
been
smooth and the new aspirants have taken charge of their new
responsibilities. All in all, the Army is firmly behind the Chief
Executive
and his decisions and there appears little internal rift or concerns
going
forward. This is a big positive.
There were some concerns that there might be a civil break down in
Pakistan
after attacks on Afghanistan and that we will see mass scale rioting,
severe
law and order problems etc. Well, to put it mildly, NOTHING DOING!!
Yes,
we have had problems of street protests, rallies, some rioting etc but
this
is nothing that has not happened in Pakistan before. In a country of
140mn
people if the religiously bent leaders manage to bring out on the
streets
50-70,000 people in total all over the country then in all honesty it's
a
joke. The country has seen worse. Having said that, the border towns
like
Quetta, Peshawer and the adjoining tribal areas near Afghanistan are
tense
with much more intense protests than other parts of the country but in
all
fairness this was and is expected. In fact, what we are seeing is much
less
than what we had initially expected them to be. And as the attacks
linger
on the intensity will reduce as people let off steam and become more
"accustomed" to the new reality.
As far as business centers in Karachi and Lahore are concerned there
was
fear on the first day of the attack but since then it is business as
usual:
people go out to have lunches and dinners, young couples still date,
the sea
side is still littered with people in the evenings, sectarian killings
still
pepper the week and the KESC continues to give black outs due to its
inefficiency. If someone were to remove TVs and newspapers from the
city
then you can bet your last rupee that you cannot tell the difference
b/w now
and 6 months back. So where is the break down in civil law and order?
It's
not going to happen. Everything is well under control and manageable.
Business as usual but we now have Western support to look forward to!!
And the market....
With the economic and political scenario well under control we now have
to
take a view on the market. Is it a good time to enter the market? A
short
and simple answer is YES. After Sep 11 the market did take a beating
of
about 10-12% but since then has recovered roughly half of that. The
main
problem in the last few days was one large local institution having
huge
margin financed positions which ran into problems in a falling market.
The
State Bank of Pakistan and SECP had to intervene and get other
investors
(the large local nationalized banks) to buy off this local institution
to
save the market. This has happened and approximately USD 30mn worth of
weak
position has been taken over and delivery picked up by the nationalized
banks.
All in all the weak holding has been picked up and there are very few
genuine seller at current rates. In fact, local institutions are
buyers at
market dips. To give you an idea the total badla or margin financing
of
weak holdings in the market was approximately USD 70mn around 4-5
months
back; last Monday it was only USD 15mn!!! Where has this USD 55mn worth
of
stock gone? Picked up? Evaporated? Your guess is as good as ours.
Thus, at
current levels there are not many weak holders, not many genuine
sellers and
the negative war news is already factored into prices. Does this mean
that
the market is at good entry levels? Well, YES. BUY!!
With politics well under control and manageable, the economy likely to
get
further IMF / WB / US support going forward, the current cheap market
presents a good opportunity to go long and build positions in PTCL,
Hubco,
PSO, Fauji and MCB.
Iqbal Latif
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