Pakistan Stocks May Rally After Deadly Floods, History Shows: Chart of Day

Pakistan’s deadliest floods will help drive the nation’s benchmark stock index to new highs if history is any guide, according to BMA Funds Ltd. [p] The CHART OF THE DAY shows the KSE100 index of Karachi- traded shares climbed following nuclear tests in 1998, the Sept. 11, 2001, terrorist attacks in the U.S., an October, 2005 earthquake in Pakistan’s Kashmir region that killed more than 73,000 people and the global credit crunch last year.

“Pakistan is a contrarian investor’s paradise,” said Muddassar Malik, who oversees the equivalent of $100 million in stocks and bonds as chief executive officer at BMA Funds in Karachi. “Buying at times of maximum pessimism has been highly rewarding. The coming point of maximum pessimism would be the ideal time to buy Pakistan.”

Crises and natural disasters make Pakistani stocks, already the cheapest in Asia, more attractive to investors, Malik said. The index was at 6.59 times next year’s earnings estimates as of Sept. 9, according to Bloomberg data. That compares with the 14.92 times multiple on the same day for neighboring India’s benchmark, the Bombay Stock Exchange’s Sensitive Index.

The Karachi 100 share index has fallen 3.5 percent since the nation’s deadliest floods began on July 22 and caused losses estimated by the government at $7 billion. Oil & Gas Development Co., the biggest fuels explorer has fallen 2 percent to 145.50 rupees and MCB Bank Ltd., the biggest lender by market value, has dropped 9.9 percent to 185.62 rupees.

Source: Bloomberg