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Despite Political Turmoil, Stock Analysts Say Pakistan Has Its Attraction

Assassination, riots and bombings hardly make Pakistan an investor's dream. But as VOA's Heda Bayron reports from our Asia News Center in Hong Kong, some stock analysts say Pakistan offers opportunities as well as risk.

At a time when Western magazine covers call Pakistan the world's most dangerous country, Mark Matthews, Asia stock strategist at the U.S. investment bank Merrill Lynch in Hong Kong, is upbeat about Pakistan. He says Pakistan is his number two favorite market, after Hong Kong.

"When you watch television or pick up a newspaper everything is blood and gore," Matthews said. "When you go to the country and you do your homework, you see that it's a fantastic economy, growing 6.5 to seven percent."

Merrill Lynch said in a recent report that Pakistan is unique, with one of the highest economic growth rates in Asia, cheap stocks and a stock market largely insulated from Wall Street's troubles, which have dragged down Asia's major indexes.

That positive forecast came even after Pakistan's central bank reduced its forecast for economic growth to seven percent or less, from an earlier prediction of 7.2 percent. That move followed the assassination of former Prime Minister Benazir Bhutto and an exodus of foreign stock investors because of months of political protests and militant violence.

The State Bank of Pakistan says portfolio investments - which include stock investments - fell more than 90 percent between July to November last year compared with the same period the previous year.

Matthews says the political factor in Pakistan is "overstated". He says even if another high-ranking political figure is killed, it will not spoil Pakistan's economic growth, which is fueled largely by consumption.

"Basically 99 percent of Pakistanis … aspire for the same things that everybody else does, a mobile phone, a television, a motorcycle," Matthews said. "The one percent or much less who are not like that, well, they will be thorn on the side of the country for some time but it's certainly not enough to derail the strong economic growth or, for that matter, the strong stock market."

Most of Pakistan's 160 million people are poor. But in recent years economists say government reforms have helped pump life into an economy that, in 1999, faced sanctions over the military's nuclear weapons test. Foreign direct investment rose to nearly $4 billion in 2006, from less than a billion in 2003 - helping create new jobs.

The Karachi Stock Exchange rose around 50 percent last year, well above Hong Kong's Hang Seng index's 39 percent increase. Local investors drove stock market growth.

Tariq Choudhry, head of equity sales, at Invisor Securities in Karachi, says it is a tough job convincing foreign investors to put money into the market. But he says one draw is that Pakistan shares are still cheaper than similar stocks in the region.

"With volatility comes price discovery," Choudhry said. "We have seen tremendous growth in the banking sector, we have seen Standard Chartered acquire a local bank, we see Barclays recently acquire a license, we have seen Temasek Holdings of Singapore acquire a local bank."

Stock analysts say investing in Pakistan has its upside, if investors can bear the risks. Aside from the political uncertainty, Pakistan faces creeping inflation and a widening government deficit. Elections are scheduled for next month, and with a new government could come economic policy changes too.