Pak stocks attractive as growth overshadows crises’

KARACHI: Atlas Asset Management Ltd., manager of Pakistan’s best-performing equity fund, said Asia’s cheapest stock market offers “attractive returns” as the economy is growing even with mounting terrorist attacks and political violence.

“I really don’t spend any time worrying about law and order,” said Muhammad Abdul Samad, who oversees $77 million in Pakistani stocks and bonds as chief investment officer at Atlas Asset in Karachi. “If you want to make returns, you have to look at the positives—we have a huge market of 180 million people and the economy is still growing.”

Gains in National Refinery Ltd (NRL), second-biggest oil processor & Attock Petroleum Ltd (APL), a fuel retailer, boosted Atlas’s top fund in the year ended June, Samad told Bloomberg. For fiscal year starting July, it is seeking investments in banks, oil and gas, and fertilizer industries.

Pakistan’s benchmark stock index, which trades at 6.4 times estimated earnings, lowest in Asia, has fallen 9% since end of June as escalating violence hurt business confidence. Prime Minister Yousaf Raza Gilani aims to boost economic growth to 4.2% in the year to June 30, 2012, from 2.4% in previous 12 months.

“Turmoil in global stock markets may prompt the fund to change its asset allocation, increasing cash holdings or preferring defensive stocks with higher dividend yields,” Samad said and added when MSCI Asia Pacific Index tumbled more than 4% to cap its worst week since October 2008. “Selling from foreign portfolio investors is affecting local market,” he said.

Last year, global funds bought $344 million worth of Pakistani stocks compared with net sales of $65 million, according to State Bank of Pakistan data. Samad’s Rs 650 million ($7.5 million) Atlas Stock Market Fund outperformed all Pakistan’s 30 equity funds, according to Invest Capital Markets Ltd. The fund returned 40% in 12 months ended June 30 and beat 29% return of benchmark Karachi Stock Exchange 100 Index. His top five holdings as of June 30 were Nishat Mills Ltd., MCB Bank Ltd., Pakistan Oilfields Ltd., United Bank Ltd. and Allied Bank Ltd.

“Banks are going to post attractive earnings because if interest rates come down, they will lend more to private sector and if they don’t, they will invest in high-yielding government securities,” Samad told bloomberg adding three banks are among his top pick this fiscal year. “Banks are in a comfortable position either way,” Samad observed.

Pakistan’s central bank unexpectedly cut the benchmark interest rate to 13.5% on July 30, after holding it at 14%, one of the world’s highest, for four straight reviews.

Samad said investors who “select carefully” can make a return of as much as 30 percent this year because Pakistani stocks are “heavily undervalued. We don’t go for speculation or price momentum and we don’t churn the mix too much. If company is fundamentally strong, it will definitely outperform the market.”

There are 137 funds in Pakistan overseeing Rs 250 billion as of June 30, up 25% from a year ago, according to Invest Capital, equivalent to 4% of Rs 5.9 trillion sitting in the nation’s bank deposits.

Samad said Atlas may introduce a government bond fund this year targeting investments of three to five years and is considering a dividend-yield equity fund and a sector-specific stock fund next year. “In short run, law and order problems definitely hurt investors. But in the long run, there’s no impact. And we’re here for the long run.”

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