PSX soaring: Karachi’s stock exchange was among the best in the world in 2024 (Photo: freepik, mehaniq)
Pakistan, the sixth largest nation in the world by population, has experienced turbulent times. Political unrest, natural disasters and economic crises kept the country in suspense. But now there are the first signs of a trend reversal. The Karachi Stock Exchange, which was ranked among the best trading venues in the world in 2024, is attracting more and more investors. There are hopes associated with the country, but also considerable risks.
Economic roller coaster ride: the challenges remain
The Pakistani economy is like a roller coaster ride: phases of growth alternate abruptly with severe setbacks. The structural weaknesses are obvious. The country depends on a few industries, especially the textile industry, which accounts for around 60 percent of exports. Lack of diversification and outdated production methods make Pakistan vulnerable to external shocks. The energy crisis with regular power outages is paralyzing the industry and deterring foreign investors.
Political instability and corruption further hinder economic development. The high national deficit forces Pakistan to depend on international loans, especially from the International Monetary Fund (IMF), which limits the country’s financial independence.
Glimmer of hope: demography and reforms
Despite these challenges, there are also bright spots. A major advantage of Pakistan is its young population. With over 60 percent of the population under 30, the country has enormous workforce potential. The government is also trying to implement economic reforms.
Cooperation with the IMF and a $7 billion loan package have stabilized the economy and strengthened foreign reserves. Falling inflation is also positive. After being over 30 percent at times, it fell to under 5 percent by 2024. This allowed the central bank to reduce key interest rates to 13 percent, the lowest level in years.
China’s “New Silk Road” as a growth engine
Important impetus for the country comes from infrastructure projects, which are driven primarily by Chinese investments as part of the “Belt and Road” initiative. The expansion of roads, energy projects and ports – particularly the port of Gwadar – could make Pakistan an important trade and logistics hub in the region.
PSX soaring: Karachi’s stock exchange was among the best in the world in 2024
The positive development is also reflected on the Karachi Stock Exchange (PSX). With an increase of more than 70 percent, it was one of the best-performing trading venues in the world alongside the Argentine stock exchange in 2024. Analysts also see further potential for 2025. In addition to economic stabilization, low valuations and rising corporate profits are attractive. Companies in the energy, consumer goods and finance sectors particularly benefit.
Investing in Pakistan: Opportunity and Risk
Investors who want to participate in Pakistan’s development can do so through the Xtrackers MSCI Pakistan Swap ETF (ISIN: LU0659579147), the only index fund for the country available in Germany. The ETF tracks the performance of 82 companies and thus covers around 99 percent of the Southeast Asian country’s market capitalization.
The top positions include, for example, Hub Power Company. In particular, the cooperation with the Chinese electric car manufacturer BYD is causing price fantasy. The two companies want to build a network of charging stations to make it easier to charge electric cars in large cities and along motorways and expressways. In addition, a production facility is to be built in which exclusively electric cars will be manufactured. Production is scheduled to begin in 2026.
Other top 10 holdings include the fertilizer manufacturer Fauji Fertilizer Companywhich benefits from the dominance of agriculture, the state oil and gas company ODGC, which plays a central role in the country’s energy supply, as well as various financial institutions such as Bank Al Habib, MCB Bank or United Bank.
But be careful: investing in this ETF requires strong nerves and the willingness to endure major fluctuations. Between 2011 and 2017, the price temporarily rose by a whopping 200 percent, but then lost more than 70 percent of its value again.
Xtrackers MSCI Pakistan Swap ETF at a glance:
- ISIN: LU0659579147
- WKN: DBX0KK
- Launch date: September 2011
- Fund size: Around 20 million euros
- Total Expense Ratio (TER): 0.85 percent pa
- Volatility 10 years: 25.44 percent
- Maximum Drawdown: 79.21 percent
- Use of income: Accumulating (profits are reinvested)
- Replication method: Synthetic via swaps, meaning the ETF uses financial exchanges to replicate index performance.
Conclusion: Pakistan – land of unlimited opportunities?
Pakistan offers great potential, but also significant risks. The opportunities lie primarily in the demographic advantages, economic reforms and progress in the infrastructure sector. Low valuations and growth prospects make the market attractive for risk-taking investors. However, political uncertainty remains a major obstacle. Elections and changes in government can jeopardize progress. The strong dependence on the IMF and the low diversification of the economy are also problematic.
Brave investors willing to take these risks could benefit in the long term from one of the most dynamic emerging markets. The Xtrackers MSCI Pakistan Swap ETF offers a speculative way to participate in the country’s recovery. However, the investment is only suitable as an addition to a portfolio and requires the willingness to accept greater fluctuations in the fund price.
Disclaimer:
Not investment advice. No call to buy or sell securities.