Notwithstanding headlines about the imminent collapse of Pakistan’s economy, it is hard to ignore international investors while they laugh all the way to the bank simply by putting their money to work in the country’s booming capital market.
The latest affirmation of Pakistan’s potential to generate high returns for global equity investors has come from an unlikely place: Stockholm, Sweden.
One of the fastest growing asset management companies in the world, Sweden-based Tundra Fonder, has decided to open a permanent research office in Pakistan in the first quarter of 2014.
Tundra is no stranger to Pakistan’s equity market. Of its total assets under management, it has already invested about $100 million in Pakistan.
“Changing the perception of Pakistan in the eyes of international investors will be a gradual process. Pakistani corporate (entities) have shown one of the highest average returns on equity (ROE) across emerging and frontier markets in the last 10 years,” said Muhammad Shamoon Tariq, who is part of Tundra’s portfolio management team and will serve as the head of its Pakistan office.
Speaking to The Banker.com.pk in a recent interview, Tariq said an early resolution of the energy crisis combined with moderation in international relations, traditional democracy taking root in the country and long-term policy making can make Pakistan a ‘breakout nation’ in the next decade.
Tundra currently manages six funds with a focus on frontier and emerging markets. Out of $100 million currently invested in approximately 40 companies listed on the Karachi Stock Exchange (KSE), its Pakistan-dedicated fund has assets of approximately $70 million, Tariq said.
“This makes up approximately 1% of the free-float of the KSE. Our Pakistan-dedicated fund is the largest international fund of its type – three times larger than the London-listed exchange traded fund (ETF) and one of the four largest mutual funds in Pakistan,” Tariq noted.
The money invested in Tundra’s funds comes 100% from European clients, a majority of them hailing from Sweden, according to Tariq.
“Our funds are open to anyone who likes to invest though. We have not actively marketed ourselves outside Scandinavia at this stage, but we see an increasing interest from non-European investors now,” he said.
Tundra currently boasts a team of five fund managers and analysts. Two analysts will be hired in coming months, Tariq said, adding three people will be based in Karachi to cover Pakistan and the frontier markets initially.
“We hope to grow further in Pakistan. It has a large pool of skilled and ambitious people within its financial sector that makes the country a natural recruitment place for Tundra,” he observed.
Tundra’s Pakistan-dedicated fund posted a net return of 9.7% in Swedish krona (SEK) in January against the benchmark MSCI Pakistan net return of 2.6% (SEK) in the same month. The fund was launched in October 2011 and has posted a return of 83.9% since then in contrast with the benchmark return of 57.2% over the same period.
The one-year return of the Pakistan-dedicated fund has been 59.4% as opposed to the benchmark return of 38%.
“We believe foreign funds will ultimately realize the underlying factors, such as a young population, stabilizing democracy, geopolitical location and bottom-line growth in Pakistan,” Tariq said, while referring to the fact that the KSE is still trading at a price-to-earnings (P/E) multiple of nine times, which is much lower than the average P/E of 12 to 13 times for the frontier and emerging markets.