Investment Thesis

Improving macro-economic indicators together with falling COVID-19 cases bode well for Global X MSCI Pakistan ETF (NYSEARCA: PAK). This upward trajectory in the economy is largely due to the reforms instituted by the incumbent government. Considering the current scenario coupled with other material events, PAK ETF is expected to perform better than its regional rivals.

Introduction

Global X MSCI Pakistan ETF at the time of writing this article is trading at NAV of $27.87 per share with a Price-to-Earnings ratio of 8.82x and Price-to-Book Value ratio of 1.04x. In its recent performance, the ETF rose by 16.49 percent within the last three months.

Source: PAK ETF

Source: PAK ETF

On the risk side, the fund has the following risk stats:

Correlation of Pakistan Stock market with PAK ETF

As the above graph shows, this ETF has an extremely high correlation with the performance of the Pakistan Stock Market ((KSE-100 index)). The reason is that the major constituents of the KSE-100 index are also part of the holdings of this ETF. However, the breakdown in the correlation largely occurs due to foreign exchange movements.

Further, the following sectors are part of the KSE-100 index but they are not included in the holdings of PAK ETF.

  1. Tobacco
  2. Refinery
  3. Transport
  4. Telecommunications and Technology
  5. Chemical
  6. Food and Personal care products

The above sectors are not included because the companies that belong to these sectors have lower liquidity and market capitalization. Therefore, any activity or excitement in the share prices of the constituents of these sectors will also lower the correlation between the KSE-100 index and PAK ETF.

Correlation of Pakistan Stock market with the economy of Pakistan

Apart from the small percentage, the majority of the companies that are part of this ETF derive their demand from the economy of Pakistan. Therefore,