Tuesday, September 10, 2013

A More Stable Pakistan

Seemingly lost in all the talk and turmoil of Syria and Egypt, the first full-term peaceful transfer of a democratically elected leader in Pakistan was reported yesterday: "Pakistani President Asif Ali Zardari has officially stepped down at the end of his five-year term, becoming the first democratically elected president in his country's history to complete his full tenure in office."  (I added the bold).

This is the best news I've heard for a long time.  To me this decreases political risk in Pakistan and the Indian sub-continent.

I liken democracy to investments.  The key take-away from my time in fund-of-funds was that good investors stick to their process.  Great investors seem to be more in love with their process and strategy than the companies they invest in.

I think this is similar to democracy.  Democracy to me is a process.  Sticking to the democratic process is more important than having a good leader at the helm. "People power", makes for good headlines - especially if the media's preferred party is being supported by the crowed.  But it is easy to overweight the loud protests in the capital's center.  What about those who live elsewhere in the country? 

Consider the US. George Bush had just about the lowest approval ratings of any US president during his last few years in power.  At the time I remember feeling that anybody would be better than him and that he should be replaced immediately. But the US stuck to its process. 

America was lucky. Its first leaders stepped down when their time was up. George Washington seemed to be one of the rare military and political leaders who willingly gave up power and retired. He set a precedent that has served the country well.  He is rightly called the Father of the country

I was among a handful of investment analysts covering the Indian sub-continent in the early 1990s.  Most of my time was spent in Karachi and Lahore as few institutions were able to navigate India's 'badla' system. 

In Pakistan I met many smart, switched-on people and managements.  Most business leaders and CFOs I met were very good and knew what they were doing.  Political instability seemed the biggest hindrance to growth. 

It has been about 20 years since I was last in Pakistan and I am very much out of touch with the place.  There could be more instability down the road, but a milestone seems to have been reached, a precedent set. 

The market seems to like this stability. The main Pakistan index - the Pakistan KSE 100 Share index - is up about 35% year-to-date and 3.3x since its January 2009 global financial crisis low. It is up almost 26x since its 1998 Asian financial crisis induced low. 

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