Currency-depreciation rumors are playing out in Pakistan, with the rupee tumbling over 3.0% in mid-week trading. The realignment is provoked, at least fundamentally, by a deteriorating external account. But it is exacerbated by faltering confidence in the government. Prime Minister Sharif is under investigation for money-laundering allegations. There is good news behind the veil of volatility. Prior to this week, the IMF targeted economic growth at 5.0% in 2017 and 5.2% in 2018. A weaker rupee could bolster that momentum, given a lively export sector, although the impact of higher local interest rates is unclear. We suggest that cross-border investors actually sharpen their focus on Pakistan. Foreign-exchange shocks often depress private- and public-sector valuations; they can lead to outsized discounts. We acknowledge that a perpetual obstacle to deal-making here is ad hoc headline analysis. A cover story from The Atlantic in December 2011 lingers vividly: “The Ally From Hell: What to Do About Pakistan.” There are other examples. In this market, the risk tolerant are best served by maneuvering to the front of the economic cycle, rather than centering attention on international affairs. ■
Our Vantage Point: In Pakistan, like other emerging markets, asset volatility can be unnerving. But that skittishness may cultivate widespread opportunity.
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Image: Pakistan is a major player in agricultural exports, ranking eighth globally in farm output. Credit: Paop at Can Stock Photo Inc.
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