Over the last few years we have seen a major change in the worldwide investment arena and indeed while many economies are falling by the wayside there are a number of interesting opportunities arising for investors. We saw that Barclays International Bank had been conducting research into
Investment trends, and decided to conduct some of our own. We thought it would be interesting to take a look at investment trends and investment ideas amongst the expat community in Pakistan to see what thoughts they have for the future.
While a number of the results from the expatforum.com may seem a little predictable there are some interesting trends emerging. We will now take a look at the individual asset classes mentioned in our online poll and see what kind of response we have from expats living in Pakistan.
The Pakistan economy as a whole has shown a great resilience over the last few years and indeed impressive economic growth of 3% in 2011 is expected to be beaten in 2012 with the authorities already pencilling in growth of 3.7%. This would be a phenomenal performance bearing in mind the ongoing economic downturn within Europe and indeed around the world and perfectly illustrates the strength of the Pakistan economy as a whole. However, this is a country which certainly divides many people with regards to economic growth as well as ethical investment.
The main indicators regarding growth in the Pakistan economy for 2012 seem to point towards the private sector as well as inward investment by the Pakistan government and Indian companies. When you bear in mind that India is currently in the midst of a significant economic boom then we can only assume that inward investment from the Pakistan authorities will further strengthen the ongoing economic growth of Pakistan. It is also worth remembering that Pakistan has attracted, and continues to attract, a significant number of expats from around the world and therefore business opportunities are arising on a regular basis.
When you bear in mind the ongoing economic boom in Pakistan, with growth expected at around 3.7% for 2012, it seems fairly safe to assume there will be investment demand for property. However, when you take into account the massive difference between those at the higher echelons of the income scale and those at the very bottom it is sometimes a very difficult country to understand with regards to economic growth in the midst of abject poverty.
There are high hopes that the ongoing economic boom will drag many of those at the bottom of the income scale towards a life which is more bearable and more acceptable. There is also significant interest from overseas investors with regards to Pakistan property and indeed it is possible to gain exposure to this market via collective investments as opposed to individual asset purchases. When you also take into account the fact that many people believe that the Pakistan economy is well-positioned for long-term future growth then perhaps it is no surprise to learn that property is popular.
If you’re looking to invest in overseas property then it is vital that you take professional financial advice at the earliest opportunity to protect your funds.
When the worldwide economy is in trouble time and time again we have seen more peripheral investment markets such as art coming more to the fore. This would appear to be happening again with regards to expats in Pakistan with 20% of those involved in our online poll suggesting they would consider an investment in Pakistan art. This is a country which has a very colourful history, a very diverse culture and arts and antiques which many collectors drool over. So perhaps it is not so surprising to learn there is interest in this particular arena from expats living in the country?
At this point it is also worth considering the fact that the art market as a whole is estimated to be worth around US$110 billion per annum with around 30% of this income from Chinese investors. When we mention the asset class of “art” this is a very diverse investment arena and one which requires in-depth research and professional advice. Too many people automatically assume there is money to be made in all pieces of art when in reality this is not the case. Trends come and go, fashions come and go and prices rise and fall – do not be caught on the wrong side!
Precious metals (10%)
If you are looking at the worldwide economy and the worldwide expat market then perhaps this significant interest in the precious metals market would be warranted. However, the situation in Pakistan is very different with economic growth of around 3.7% expected in 2012 whereas the European economy will be lucky if it remains neutral.
Nonetheless there seems to be some interest in precious metals amongst the expat community in Pakistan with this particular type of asset class often seen as a “safe haven”. Many investors around the world are looking for the ultimate in safe havens and when you consider the price of gold, perhaps the most recognisable of precious metals, has increased in value from $300 an ounce back in 2000 to around $1600 an ounce today, having peaked at $1800 an ounce in 2011, this interest is warranted.
However, what will happen when worldwide stock markets recover? What will happen when worldwide economies recover? Will we see a flight from the so-called safe havens into the more risky asset classes where the risk factor may well have reduced due to an economic recovery?
The antiques market is a very difficult market to judge and a very difficult market to research because there are so many different elements to take into account and so many different factors. The very fact it has attracted 10% of the expat vote in Pakistan is interesting as is the fact it has beaten even stocks and shares which attracted zero interest. It is at this point we should mention that historically the antiques market has come to the fore when worldwide stock markets and local stock markets are struggling.
As we touched on above, it is also worth noting that the Pakistan arts and antiques sector is perhaps one of the more colourful around the world with a history, diversity and culture which very few can compete with. However, it is also worth noting that the antiques market is not the most liquid of markets and even if you were to pick up an artefact at a good price with the potential to make a profit in the longer term what would happen if you had to cash in your investments at short notice?
Prices move with the trends, prices move with fashion and ultimately if you need to cash in your investment then there is no guarantee there will be any buyers and indeed if there were would the price available be acceptable?
Classic cars (10%)
The classic cars market may seem something of an anomaly when looking at the worldwide investment arena but the reality is that interest in classic cars has increased of late. It seems that classic car enthusiasts are making a comeback and indeed it is not just classic cars which are catching their attention. We have seen multi-million pound deals for both classic cars and modern-day sports cars although whether investors see these as safe havens is a matter for debate.
While very often the playground of the rich and famous, the classic cars market is attracting interest from private investors who perhaps have little experience in this field. As a consequence, and bearing in mind it is not the most liquid market, you should take professional advice at the earliest opportunity. Even if you manage to pick up a classic car at a relatively cheap price it may be some time before you can liquidate this and cash in for a profit. If you consider the classic cars market as a long-term investment arena then this may well give you the opportunity to look into this further. Otherwise you may find your funds tied up for a relatively long time and you could miss out on other opportunities in other asset classes.
Stocks and shares (0%)
When you consider forecast economic growth for 2012 is in the region of 3.7% it is a big surprise to learn that no expats in Pakistan have any intention of buying stocks and shares in the short term. Surely the best way to benefit from general economic growth in the country would be to invest in a basket of stocks and shares offering a spread of investments which replicate the underlying economy?
Even though worldwide investor sentiment is still struggling to pull away from the 2008 downturn, 2011 downturn and the ongoing downturn this year, the prospects for the Pakistan economy are better than most. We can only speculate at what level the Pakistan stock market would be if the worldwide economy was back on track and the European debt debacle had been resolved. However, in the meantime there is no doubt that ongoing worldwide concerns will bear heavily in the minds of some investors and perhaps this is one of the reasons why interest is so low at this moment in time.
Whether interest in the Pakistan stock market improves as the worldwide economy picks up, and investor sentiment turns positive, remains to be seen.
Fine wine (0%)
Fine wines and stocks and shares seem to be the main losers with regards to the investment intentions of expats living in Pakistan. The fine wine market we can perhaps understand but it is a mystery as to why there is so little interest in stocks and shares. Moving back to the fine wines market, there is large-scale investor interest from areas such as Asia, Russia, South America, India and Europe so why Pakistan has missed out we do not know.
Perhaps the fact that the fine wines market is a specialist arena and one which generally tends to improve when economies are struggling is perhaps the reason? This might explain the situation in Pakistan where the economy is buoyant and many people seem happy to invest in property (by far and away the most popular in our online poll) as a way of tapping into the underlying economic growth in the region. It is probably also worth mentioning that the fine wines market is also a very specialist arena and one which not everybody will feel at home with.
Indeed there may be cultural issues or religious issues which stop investors from looking at this arena despite the fact it is a worldwide market. It is however more regulated today than it ever has been and historic scams and fraudsters are now fewer and further between. Will we ever see the fine wines market becoming popular in Pakistan?
Risk reward ratio
When looking at any type of investment it is imperative that you take into account the various risk reward ratios for various scenarios. Any professional investor will take account of the risk reward ratio and compare and contrast the ratio on various scenarios. This takes away the human emotion from investment and leaves it strictly down to cold hard facts and cold hard figures. So what type of risks do we need to take into account?
One of the major risks is systemic risk, which is the actual risk of investing in any market, as well as specific risk, which is the specific risk associated with any one asset or any one asset class. One of these risks is general and one of these risks is specific to a certain investment which gives you an amalgamation of the overall risk you may be taking on board. To put this in layman’s terms we will now take a look at the money market crisis from 2008 which came as a direct result of the US mortgage sector crash.
After the mortgage market crashed in America we saw a number of lenders leaving the worldwide money market because of the perceived increased risk of default by third-party borrowers. As a consequence, those who remained in the market demanded a larger return on their investment which meant that the cost of borrowing increased. This was because of the increased risk of default by any one individual third-party and the potential losses that investors may incur. The overall increase in worldwide borrowing costs led to reduced investment, liquidity problems with banks and indeed many businesses were left short of funds.
Following on from the risk reward ratio and the problems within the worldwide money markets back in 2008 this increase in the cost of borrowing had a major impact upon economic growth. In what became something of a vicious circle, the more financial pressure companies around the world began to feel the more they reduced their cost base which led to increased unemployment and lower profitability. As profits continued to come under more pressure we saw yet for cost-cutting, more unemployment and indeed many companies were struggling to survive and eventually closed down.
This is perhaps a very simplistic view of the worldwide economy at its worst back in 2008 but in many ways the situation today, taking into account the European debt debacle, could be potentially worse. Despite the fact that the German government has backtracked on a number of key policy decisions which should assist any European bailout, and specifically banking bailouts, European leaders have yet to deliver on these promises. Until we see a return of investor confidence in the worldwide economy and worldwide stock markets it seems unlikely we will see any significant economic growth.
Investor sentiment has been seriously impacted over the last few years and many investors are still licking their wounds on large investment losses they have been forced to crystallise. There are some who are predicting a doomsday scenario which could see a return to normality perhaps decades away for many countries within the Eurozone. Whether this proves overly pessimistic or not remains to be seen.
When you bear in mind that the Pakistan economy is set to grow by around 3.7% in 2012 it is not difficult to understand why investors are happy to put their funds into the property market. However, it is a little surprising to learn that stocks and shares registered no votes from expats in Pakistan despite the fact that traditionally this is perhaps the most convenient way of tapping into underlying economic growth. There was some interest shown in the art market, precious metals market, classic cars and antiques which may well surprise some people. It seems that some investors do want to diversify!
The overall situation with regards to the Pakistan economy seems to hinge upon private sector investment, government investment and indeed investment from Indian companies who are in the midst of an economic boom at this moment in time. There is no reason to believe that any of these investment lines will dry up in the short to medium term although the worldwide situation may well impact upon the level of economic growth seen in the short to medium term.
At this point in time it is still unclear as to how the European debt debacle will finally unwind but if this Pandora’s box of problems can be rectified then perhaps the European economy will recover which should lead to a new period of growth in the worldwide economy?