Beijing‘s bet on Pakistan

Pakistan's transformation has not gone unnoticed by China's business-minded leaders.

Western investors tend to associate Pakistan with terrorism, says Shuli Ren in Barron's. Yet there must be more to it than that. Why else would China's "practical and business-minded" leaders pledge to invest $46bn in an infrastructure development scheme known as the China-Pakistan economic corridor? It's "by far Beijing's biggest bet on another developing country".

The Chinese have noticed that Pakistan is getting its act together. It was on the verge of a balance of payments crisis in 2013, but has impressed the International Monetary Fund with sound management and structural reforms. It has reduced overspending, cutting the budget deficit to 5% of GDP from 8% in 2012-13. It has cut expensive, inefficient electricity subsidies, beefed up tax collection and eliminated loopholes. Privatisation plans have also helped.

Lower oil prices, meanwhile, have seen inflation drop to a new low of 2.5%, from 8% last year, leaving scope for interest rate cuts. Growth is up from 3.7% in 2013 to 4.1% last year. And the country is safer fatalities from terrorist attacks hit a seven-year low last year.

Throw in cheap valuations a forward price/earnings ratio of around nine and Pakistan is "an undervalued reform story", says Renaissance Capital. Brave investors can access this small, volatile market with the DBX MSCI Pakistan ETF (LSE: XBAK).

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Central banks want politicians to take charge – but what will they do?
US Economy

Central banks want politicians to take charge – but what will they do?

The US Federal Reserve has come to the end of the road in terms of what it can do to accelerate any recovery, says John Stepek. It's over to the polit…
17 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020