WHILE local people and companies are worried sick about the country’s ‘image’ and the possible ‘fallouts’ of terrorist acts even when they occur as far away as in San Bernardino, global investors focusing on frontier markets vouch for Pakistan’s future.

Frontier markets, a term coined in the 1990s, refer to countries with investible stock markets that are less established than those in emerging markets. Such economies are pursued typically by investors willing to take the risk for potentially higher returns.

Some of the risks associated with frontier markets include political instability, poor liquidity, inadequate regulations in certain areas, substandard financial reporting, volatile currency market and disproportionate dependence on volatile commodities.

Pakistan descended from emerging to frontier market category in 2008 after the capital market crash followed by a shutdown for days in the period of major political upheaval. The MSCI, known for benchmarking world equity markets, hinted earlier this year that it was actively considering reclassifying the Pakistan Index from ‘Frontier’ to ‘Emerging Market’ in 2016.

“Mark my words: as the political system stabilises and the security situation improves, there is nothing stopping Pakistan’s ascent. It has all it takes to hit the next level,” said a frontier market specialist.

While introducing the country to their Swedish investor base, Tundra Fonder describes Pakistan’s capital market on its website as “one of the more developed…Most of the largest companies listed…have a track record of 30-40 years…There is deep-rooted corporate culture…80pc of trade is transacted by locals and market liquidity is good comparatively. It is easier to analyse companies in Pakistan since all listed companies are obligated to follow international accounting and disclosure standards…Pakistan remains one of the world’s cheapest markets”.

‘As the political system stabilises and the security situation improves, there is nothing stopping Pakistan’s ascent. It has all it takes to hit the next level’

“We are truly excited over our discovery of real Pakistan, which tops the category of frontier markets by a sizeable margin. We entered the market by investing at the Karachi Stock Exchange and were astonished by the returns, which were 60pc higher than our performance benchmark. Within three years, we launched the first country-dedicated fund, Tundra Pakistan, and signed it in on the platform created in Sweden for pension fund investment in capital markets. [Sweden has allowed 17pc of the huge pool of state pension fund investment in capital markets]. Today, Tundra Pakistan is among the top performers listed on the platform,” a senior Swedish executive said.

“About 40,000 Swedes out of a total population of a mere 10m already have their money invested in the capital market of Pakistan through multiple investment funds, against 100,000 local retail investors in a population of 191m,” he threw numbers to support his view of the comparative charm of Pakistan’s capital market and the growing interest in Europe to place it on the continent’s investment map.

Talking to Dawn last week in their office by the seafront in Karachi, Jon Scheiber and Johan Elmquist, respectively the CEO and a partner at a Swedish investment company, Tundra Fonder, were visibly excited about the country and its future.

The company opened its office in Karachi this year to conduct market research, profile listed companies on sustainable standards, direct interactions for greater insight on work ethics and future direction of companies of interest, and to launch an advocacy drive for adopting of standards that Swedish investors care about.

Tundra Fonder manages six mutual funds that invest in four frontier markets: Pakistan, Bangladesh, Vietnam, Sri Lanka and Nigeria. One dedicated fund with a geographical focus invests exclusively in Pak­istan. According to background research, the company has invested $145m in the country since 2011, making up about 68pc of the total assets it is currently managing.

“Now is the right time to invest here as we believe the market is under-valued. We are long-term investors and take at least a 10-year view unlike footloose investors who are in and out on a daily basis. We leverage risk by choosing big established consumer and infrastructure-related companies over those in more cyclical sectors such as energy and commodities,” Scheiber said while discussing the dominance of bears in the capital market this year after a three-year-long bull run.

Selling by foreign investors has been stated as one of the key reasons for the depressed capital market in 2015; outflows from the KSE have amounted to around $290m so far this year. In sharp contrast, Tundra has increased its investment exposure in the country by 33pc since January.

Explaining the purpose of their visit, the duo said besides supervising organisational affairs in their newly established office, they were in Pakistan to speak at a seminar arranged in collaboration with the KSE.

“We wished to explain to the management of listed companies the value of adopting new standards of sustainability and social audit to attract investment from more aware investors in Europe, who tend to be more discrete in their choice of companies they like to support,” the visiting investment strategist said.

Commenting on their experience in Pakistan, they said the indoor environment is as comfortable and professional as in any developed country with the pleasant exception of access to cheaper, qualified and motivated pool of young people. But on the outside is an unknown territory that looks risky.

“Never in my life have I seen such a high visibility of heavy armament on roads in otherwise perfectly normal cosmopolitan cities as I have in Karachi. I find it abnormal and scary,” Elimquist commented.

Published in Dawn, Business & Finance weekly, December 14th, 2015