Swedish Investor Prefers Pakistan Over India for Investments
Mattias Martinsson believes even if all challenges remained as they were during past decade, next three to five years should still be good for investors
WEB DESK: Pakistan has surely emerged as an appealing market for the foreign investors and so does for a Swedish investor. Handling of novel coronavirus and early opening helped country boost its exports and established the confidence of the foreign investors.
Surely, it has turned out to be heaven for foreign investors as what it offers is lucrative.
Mattias Martinsson, Founder and Chief Investment Officer at Tundra Fonder, explained that he chose Pakistan to invest over India, despite the difference in volume of economy.
Why Martinsson chose Pakistan over India?
While talking to News360, Swedish investor explained, “We choose investments based on merits. From this perspective Pakistan appears to offer better investment returns”.
Martinsson went on to elaborate:
1. Over the last ten years, the equity market has returned higher USD returns than India has.
2. The listed companies have delivered higher earnings growth in USD than India.
3. Pakistani companies are trading at 7x earnings, as compared to Indian companies which, are trading at 27x earnings
“For long-term investors, we believe both countries offer interesting investment opportunities, due to demographics and reforms from a low base”.
Growth will be higher in this part of the world than in developed economies. We are not at all negative towards India, rather the opposite.
In our line of work, it is, however, about determining what is priced at current share prices and, based on that, where we can expect the higher returns.
Here we believe Pakistan offers better investment opportunities. Simply because of perception.
“We sometimes refer to Pakistan as “the perception arbitrage.” By this, we mean that 95% of what is written about Pakistan is about 5% negative things”.
We all know Pakistan has gone through massive problems since the 70’s, and challenges remain.
It is important to note that this has still allowed the better companies to show significant earnings growth and long-term investors to get a reasonable return on their invested capital, Swedish investor said.
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The country needs to increase its export base to avoid the recurring boom-and-bust cycles with significant devaluations. In the stock exchange, liquidity needs to improve, and regulations to prevent insider trading needs to be strengthened.
2 (3) – EPS growth has been higher (yes, again, in USD) pic.twitter.com/gcoqIaPtAm
— Mattias Martinsson (@Tundra_CIO) November 24, 2020
When we summarize the problems and our experience from investing in Pakistan for close to 10 years now, we still end up with the conclusion that the investment opportunities for long-term foreign investors have been great, at least for us, and they look even better ahead.
The corporate quality is very high, and we find more quality companies trading at attractive valuations than in any other market we follow currently.
“Even if all challenges would remain exactly as they have been during the last 10 years we would still believe that the next 3-5 years should be very good for investors”.
The fact is that the economic reforms currently ongoing with the new government mean Pakistan actually has a chance of breaking the recurring boom-and-bust cycles, Martinnsson said.
3 (3) – Expectations are lower pic.twitter.com/DuUHGN6BLh
— Mattias Martinsson (@Tundra_CIO) November 24, 2020
If they succeed, this could translate into a more lasting and stable upward trend for the equity market.
Foreign investors are yet to come but, they will eventually come as interest for emerging markets and, after that, the smaller emerging markets return.
This means we believe we are yet very early in what we expect to be a positive number of years for Pakistani equities.
With the equity market trading at 7x earnings versus a historical interval between 5-12x earnings, we are still very early in the recovery phase.
“Should the new government be allowed to continue its ongoing economic reforms, the next phase would be for Pakistan to narrow the discount to its neighboring equity market in India. That is yet to be seen”.
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