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Pakistan's Economy Under-estimated, Karachi Equities Undervalued

RiazHaq

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Even with the run-up (in KSE-100), Andrew Brudenell, manager of the HSBC Frontier Markets fund (HSFAX) in London, says Pakistan is one of the cheapest markets he follows, at about seven times earnings. He notes that earnings growth has kept pace with the market. The firms, he adds, are typically cash-rich, boast strong return on equity levels in the 20% range, and pay good dividends. In Pakistan, the informal, cash-based economy for goods and services is larger than the formal economy. Barron's, November 17, 2012

Growing gap between dismal official economic statistics and consumption boom coupled with strong corporate profits in Pakistan is a challenge for many analysts around the world. Most believe that Pakistan's GDP is, in fact, much larger and growing faster than the government data indicates.

Informal Economy Estimates:

M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), have published their research on estimates of the size of Pakistan's informal or underground economy.

Kemal and Qasim explore several published different approaches for sizing Pakistan's underground economy and settle on a combination of PSLM consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". Here are the figures offered by the authors for 2007-8:

1) Formal Economy: Rs. 10,242 billion= $170 billion (using Rs.60 to a US dollar)
2) Informal Economy: Rs. 9,365 billion = $156 billion
3) Total Economy (Sum of 1 & 2): Rs. 19,608 billion = $326 billion

Assuming that the ratio of formal and informal economy remained the same in 2011-12, here are the figures for Pakistan's total economy as of the end of last fiscal year which ended in June, 2012 :

1) Formal Economy: $210 billion
2) Informal Economy: $191 billion
3) Total Economy: $401 billion

Hypermart+Pakistan.jpg


Naween Mangi of Businessweek in her piece titled "The Secret Strength of Pakistan's Economy" described how Pakistan's informal cash-based economy evades government's radar, illustrating it with the story of a tire repair shop owner Muhammad Nasir. Nasir steals water and electricity from utility companies, receives cash from his customers in return for his services and issues no receipts, pays cash for his cable TV connection, and pays off corrupt police and utility officials and local politicians instead of paying utility bills and taxes.

KSE+vs+BSE+2012YTD.jpg


Karachi Stock Market:

A string of strong earnings announcements by Karachi Stock Exchange listed companies and the Central Bank's 1.5% rate cut have helped the KSE-100 index exceed 16,000 level, a gain of 42.1% (33.2% in US dollar terms) year to date. In spite of this run-up in KSE-100, Andrew Brudenell, manager of the HSBC Frontier Markets fund (HSFAX) in London, remains bullish on Pakistani equities, according to Barron's. Pakistan is one of the cheapest markets he follows, at about seven times earnings. He notes that earnings growth has kept pace with the market. The firms, he adds, are typically cash-rich, boast strong return on equity levels in the 20% range, and pay good dividends.

Conclusion:

While Pakistan's public finances remain shaky, it appears that country's economy is in fact healthier than what the official figures show. It also seems that the national debt is much less of a problem given the debt-to-GDP ratio of just 30% when informal economy is fully comprehended. Even a small but serious effort to collect more taxes can make a big dent in budget deficits. My hope is that increasing share of the informal economy will become documented with the rising use of technology. Bringing a small slice of it in the tax net will make a significant positive difference for public finances in the coming years.

Haq's Musings: Pakistan's GDP Grossly Underestimated, Stocks Highly Undervalued
 
Whatever feel you better.....Sure KSA is bigger and better performer than BSE.......sweet dreams
 
Assuming that the ratio of formal and informal economy remained the same in 2011-12, here are the figures for Pakistan's total economy as of the end of last fiscal year which ended in June, 2012 :

1) Formal Economy: $210 billion
2) Informal Economy: $191 billion
3) Total Economy: $401 billion

Not a reliable estimate. :cheesy:
 
Soo true i always think the smae , dont know why Pakistan economic managers takes the hell like conservative figures...
 
before farting one should comprehend the post properly, did i mention any thing abt informal economy in my post?

i was talking abt formal economy only.

Keeping your Perversions about Fart Aside "Economic Managers" Quote Official figures . Nothing Conservative or Extravagant about it . That is why i understood "informal economy" is what you were talking about but i guess i was wrong . Even you have no idea what you are saying .
 
Soo true i always think the smae , dont know why Pakistan economic managers takes the hell like conservative figures...

What is the conservative figure you talking, you post seems meaningless.
 
spp indians starts dik measuring contest here as well.....dont know why so much obessed & frustrated ppls u guys are...:fie:
 
spp indians starts dik measuring contest here as well.....dont know why so much obessed & frustrated ppls u guys are...:fie:


do your low intellect levels have a correlation to your sight problems?? Its the @Op that put his proverbial (in your terms) dik under a magnifying lense to make it look bigger so as to compare with India's.. So understand the context before going all hubba hubba on it ;)
 
........

Naween Mangi of Businessweek in her piece titled "The Secret Strength of Pakistan's Economy" described how Pakistan's informal cash-based economy evades government's radar, illustrating it with the story of a tire repair shop owner Muhammad Nasir. Nasir steals water and electricity from utility companies, receives cash from his customers in return for his services and issues no receipts, pays cash for his cable TV connection, and pays off corrupt police and utility officials and local politicians instead of paying utility bills and taxes................

And all that is somehow a good thing? It speaks more about a society that is simply gone astray at most levels, including financial, no matter how positively one spins it.
 
Obsession... What else.. Why else would you compare a $ 40 billion stock exchange with another one that is over a trillion dollars ;)

From an outsider,s point of view " Indian pants on fire" Pakistan.s getting better in economy that,s a big no no from Indian point of view. if that does happens that means Indian,s can not have wet dreams any more which is their favourite past time and its free. My Indian friends watch out pakistanies***** coming and they have money.
 
informal economy is big but 91% seems to me like a methodological fallacy. 36% estimates from ADB and State Bank are most likely to be more robust. Although i must confess that giving an estimate to informal economy is in itself lik a blind man throwing darts.
stock exchanges are not always a good indicator of your social well being. you can take it as an indicator of investors' confidence in your economy. so you can say that investors' confidence in Pakistan's economy has increase during last 1-2 years which is a good sign indeed. but dont let urself be deceived by taking it as an indicator of economic performance unless you believe in the 'trickle down economics'.
 

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