Christopher Wood, global head of equity strategy at Jefferies, finds Pakistan’s stock market a good tactical play, especially around the International Monetary Fund (IMF) bailout cycles, as he highlighted the Karachi Stock Exchange’s sharp outperformance vis-à-vis the Indian market since the last bailout.
In his latest edition of the weekly report, GREED & Fear, Chris Wood said that since the last IMF program in September 2024, the MSCI Pakistan Index is up 84% in US dollar terms, a period in which it has outperformed MSCI India by 124% in US dollar terms. However, to keep matters in perspective, it is only fair to point out that since the start of this century, India has outperformed Pakistan by 653% in US dollar terms, said the expert.
Against this backdrop, Wood feels that the Pakistan stock market can also be a profitable market to trade around IMF bailout cycles.
Pakistan gains global clout
Pakistan has shot to a prominent profile on the world stage as it has brokered a ceasefire in the US-Iran war that has rattled global economies and driven crude oil prices higher.
The talks are due to commence in Islamabad on Saturday. The Iran 10-point plan published on Wednesday and the Trump administration’s 15-point peace plan tabled in late March seem so far apart as to make any deal unlikely in the extreme, said Wood.
“The Pakistan brokered ceasefire should be viewed for now as another version of TACO, the belief in which explains in large part why financial markets have not sold off more in the face of the dramatic Middle East newsflow of the past six weeks,” said Wood.
He also highlighted that Pakistan has been a bit of a macro-economic disaster for most of its existence since its independence in 1947, characterised by a lack of exports, recurring current account crises and numerous IMF programmes. That said, it has genuine geopolitical significance because of its nuclear status and its large military.
Wood on Indian stock market
Meanwhile, the two-week ceasefire is good news for an energy-vulnerable India, even though it must be Wood said it must be “galling” from a New Delhi perspective.
He remains overweight on Indian stock market and sees it to be a beneficiary from a relative return standpoint in case AI capex does peak this year, given its status as the reverse AI trade and as foreigners have already sold a lot of stocks, including a net US$18.5bn so far this year.
According to Wood, de-rating in recent months, driven by aggressive foreign selling rather than any particularly negative newsflow, means that India’s traditional overvaluation has reduced significantly.
The Nifty one-year forward PE is now 18.3x after reaching 17x at the end of March, which is close to the pre-Covid average of 16.8x, which prevailed between 2015 and 2020.
Renewed conflict in Iran, but also a sudden cessation in domestic mutual fund inflows, are among the downside risks.
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