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Pakistan: Economy buoyant despite political turbulence

In the face of global market turbulence, rising oil prices and rifts in the country’s rickety ruling coalition, Pakistan’s markets remain a rare sanctuary of stability for embattled investors and acquisitive foreign corporates.

In the year to May 20, the benchmark Karachi Stock Exchange (KSE) 100-share index lost just 300 points, less than 2%, while foreign direct investment continues to flood in, despite the turbulence caused in December 2007 by the assassination of former premier Benazir Bhutto. That scarred Pakistan’s investment landscape but only briefly. Karachi-based KASB Securities forecasts that FDI will slow only slightly this year, to $4 billion from $5.1 billion in 2007.

The M&A market is also healthy. Foreign companies remain attracted to the relative openness of the market, even paying top dollar for the most highly prized local assets. In May 2008, Malaysian lender Maybank paid $680 million, 5.1 times book value, for a 15% stake in leading Pakistan lender MCB. Merrill Lynch acted as adviser for MCB, with JPMorgan guiding Maybank. China’s leading banks are also seeking access. According to banking sources, mainland lenders China Construction Bank and ICBC are eyeing acquisitions, after snapping up assets in recent years in Hong Kong, Africa and southeast Asia. They’re attracted to the country’s compelling consumer demographics – Pakistan is home to 160 million people with an average age of 22, each of whom needs a credit card, an auto loan, a mortgage, a motorbike – as well as one of the region’s strongest and strictest central bank set-ups.

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