“When eating an elephant, take one bite at a time”, US Army officer and Vietnam veteran Creighton Abrams once said.
In his new book, The Rise of the New East, Ben Simpfendorfer does just that. His elephant is “The East”, the group of almost 50 emerging markets ranging from Turkey to China that is home to well over half of the world population.
Simpfendorfer gives his topic a thorough treatment. While his insights seem logical and intuitive, taken together they give an impressive oversight of into key trends shaping the region. beyondbrics noted five insights that particularly stood out.
By Gavin Bowring, Asean Confidential
It’s rare to hear of Pakistan as Asia’s best performing stock market. But over the last 6 months, the Karachi Stock Exchange is up 33.4% in local currency terms, far exceeding any other Asian market, while the Pakistani Rupee has appreciated 11% year-to-date. Pakistan also returned to the international bond markets for the first time in 7 years in April, selling US$2bn in five and 10-year sovereign debt, the latter yielding 8.25% and over-subscribed 14 times.
As India’s current account deficit ballooned to unsustainable levels last year, the government slammed the breaks on gold imports with duty hikes and new rules on re-export of the yellow metal. The result was that the jewellery industry hit a standstill.
However, according to Pakistani authorities, India’s official inflows of gold have simply shifted to unofficial channels. Time for action.
The IMF’s 3-year $6.6bn loan to Pakistan has come just in time. As the FT reported, the loan may “stave off a balance of payments crisis, cheering investors concerned that foreign reserves had sunk to about six weeks worth of imports.”
Chart after the break.
When Pakistan’s newly-elected prime minister Nawaz Sharif arrives in Islamabad this week he may take heart from the country’s surging stock prices.
But a reality check will quickly make him realise the tough task ahead in turning around an increasingly vulnerable economy. A country without regular electricity supplies can’t put too much faith in something as fickle as a stock market rally.
With a 17 per cent rally this year in the Pakistan stock market driven largely by hopes of a Nawaz Sharif election win, it might have seemed that his apparent victory was in already in the price.
But investors clearly believe there is still a little more juice the engine. The benchmark KSE 100 index rose 1.6 per cent to a record high in Monday trading, as many business people celebrated the former prime minister’s expected return to power.
As far as investors on the Karachi stock exchange are concerned, the result of Pakistan’s parliamentary election on May 11 is already a done deal.
They’ve driven the market to record highs on the prospect that opposition leader Nawaz Sharif will be returned to power. On Tuesday the exchange’s KSE-100 broke through the 19,000-level for the first time and more record highs are expected before the election’s over.
Is Pakistan’s political transition in danger of succumbing to its economic woes? That’s a question increasingly making the rounds among the country’s businessmen as pro-democracy activists look towards the first-ever transfer of power from one civilian administration to another without at least some military involvement.
Almost two weeks have passed since prime minister Mir Hazar Khan Khoso took charge to oversee parliamentary elections due on May 11. While he has named a 14-member cabinet, Khoso still does not have a finance minister.
The decision by Pakistan’s central bank on Friday to cut its discount rate by 50 basis points to 9.5 per cent was a widely-anticipated move – a measure meant to give an impetus to new investments, and part of an easing cycle of 250 bp this year. The interest rate cuts are helped by falling inflation which is forecast to stay below 10 per cent for the financial year to June 2013, down from 12-14 per cent a year ago.
But long term watchers of Pakistan’s economic trends are eager to note that new investments have plummeted in the past four years since president Asif Ali Zardari led the country back to democracy.
With elections looming in Pakistan by summer 2013, prime minister Raja Pervez Ashraf has ordered officials from the ministry of petroleum and natural resources to make certain that there are no shortages of gas this winter.
Ashraf’s order follows some of the shortages of electricity earlier this year which prompted angry street protests. Any repeat of demonstrations over gas shortages as winter temperatures get near freezing in parts of Pakistan – as happened last year (pictured) – would hardly help the prospects of Ashraf’s ruling Pakistan People’s Party (PPP) returning to rule the country for another five years.
What’s a finance minister to do when his own cabinet colleagues disbelieve his figures?
Abdul Hafeez Shaikh, Pakistan’s finance minister, is finding out the hard way. The respected former World Bank economist has had his inflation data challenged by other ministers, with one of them saying the figures are “out of tune with reality”.
It’s not that his colleagues are interested in statistics. But they are very interested in the parliamentary elections due to be held by the middle of next year – and they’re scared the voters will be angry with the official data.
The plight of Malala Yousafzai, the Pakistani schoolgirl shot by the Taliban for publicly demanding the right of women to be educated, has shone a global spotlight on the failings in the country’s social development.
Pakistan appears to have warmed up to the idea of allowing fuel imports from India, following this week’s visit to Delhi by Asim Hussain, the country’s petroleum minister.
The move adds to the growing push in both nuclear armed south Asian countries for closer economic ties. In October 2011, Pakistan announced its intention to grant the most favoured nation status to India, reversing years of resistance from Islamabad on this count, while in April this year, India decided to allow foreign direct investments from Pakistan.
Pakistan’s businesses should be celebrating this month’s interest rate cut of 50 basis points, which brought down the rate down to a maximum of 10 per cent.
But many critics argue it will take more than rate cuts to pull Pakistan’s economy out of trouble.