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Pakistan a value investor’s market, India remains classic growth story, says Chris Wood

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MUMBAI: Pakistan is much more of a value investor's market while India remains the classic growth investor story in emerging markets, said CLSA's Equity Managing Director and Equity Strategist Christopher Wood in his weekly note Greed & Fear.

In this latest note dated Thursday, Wood said he finds Pakistan's stock market attractive and will be looking to add stocks from the country in his portfolio.

Wood said the recent rally in MSCI Pakistan index has been on the back of Imran Khan-led Pakistan Tehreek-e-Insaf's victory in the country's general elections. A bailout by the International Monetary Fund now looks likely, the note said.

"An IMF bailout now seemingly beckons, rumoured to be some US$12bn (billion)," said Wood.

"The obvious problem is that the fiscal straightjacket implied by such a bailout conflicts with the populist agenda of the new government which, aside from the anti-corruption theme, contains much talk of building a Pakistan welfare state. This would be the first such IMF bailout since 2013 when the figure involved was US$6.6bn," added Wood.
Wood pointed out that there could be political implications of a bailout due to Pakistan's role in recent years as the major 'guinea pig, or laboratory experiment' for China's "Belt and Road Initiative".

China could react to an IMF bailout by providing financing to Pakistan on better terms, said Wood.

From a monetary policy prospective, the State Bank of Pakistan has begun this year a long overdue tightening, raising rates by 100 basis points on 14 July to 7.5% and by 175 bps since January.

"With fiscal tightening beckoning, all this means that growth will slow but the question is by how much," said Wood.

"GREED & fear sees no reason for now to remove the allocation to Pakistan based on the election result and will be looking to add on further weakness, be it currency and/or stock market related. The risk, however, is that Pakistan becomes a casualty of US-China tensions though such tensions also create the opportunity for the new government to play both sides off against each other," added Wood.

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