Maheen Rahman, stock picker with stellar credentials
We are not familiar with the profile of Maheen Rahman, the fund manager with Alfalah Investments. This is because this charming stock picker does not invest in Indian stocks. Instead, she is a specialist in Pakistani stocks.
However, one look at Maheen Rahman’s credentials is sufficient to establish her credibility.
Maheen father was top brass with Unilever Plc. She graduated from Lahore University in 1997 and did her Masters from the prestigious University of Warwick. Thereafter, she joined leading financial institutions like Merrill Lynch and BMA Capital where she honed her skills on how to find multibagger stocks.
Presently, she is the CEO of Alfalah GHP Asset Management, a fund house based in Karachi.
Maheen proved her mettle in 2010 by doubling the AUM of her fund and converting a loss into a hefty profit. The fund recorded a ROE of 15% even the assets of the mutual fund Industry shrank 7 percent.
The blockbuster performance is attributed to three key calls that Maheen made.
The first was to stay fully invested in equities during the depths of the global financial crisis in 2009.
The second was that she rightly sensed that oil prices had peaked and shifted from energy producers into manufacturers.
The third was that she sensed that interest rates would be cut and invested heavily in companies that would benefit from lower borrowing costs.
Pakistan is today where India was ten years ago?
There is no dispute that Pakistan is today a fledgling economy with several risk factors. However, these risk factors also provide a unique opportunity for intrepid investors to find undervalued stocks that can become mega baggers.
Investors, who could not get a toe-hold in stellar stocks like HDFC Bank, Kotak Bank, etc when they were in their infancy, can do so now with the blue-chip Pakistani equivalents.
In fact, Pakistan is heavily under-banked with only 38 million bank accounts. There are less than 200,000 mutual fund investors. This implies that there is massive room for growth.
Ambani Brothers can buy over the entire Karachi Stock Exchange and still have $30 Billion to spare
Why invest in Pakistan stocks?
There are several reasons why Pakistani stocks are a compelling investment opportunity according to Maheen Rahman.
(i) Mind-boggling YoY return of 55%:
It is unbelievable but true that the Karachi Stock Exchange Index has given a return of 55% over the past year and that too in US dollar terms. However, the rally is just warming up and has a long way to go;
(ii) Gush of Billions from big-ticket foreign investors expected:
Pakistan will join the esteemed ranks of MSCI’s Emerging Markets index in 2017. This will result in a gush of billions of dollars of passive funds.
(iii) Cheap valuations:
The best part is that despite the raging rally, Pakistan is dirt cheap in comparison to India and other emerging markets.
The benchmark Karachi Stock Exchange 100 index trades at only 13 times earnings, compared to 15 on average for emerging markets. That’s a valuation gap of about 15%.
(iv) Hefty dividend yield:
On average, Pakistani shares yield nearly 5%. This provides the much needed margin of safety.
(v) Gush of Chinese investments:
China is investing heavily in Pakistan as part of a strategic game plan to achieve dominance in the South Asian region. The investments are going into infrastructure like power plants etc which will improve the GDP.
(vi) Change in sentiment:
The MSCI upgrade is causing a “complete turn in sentiment” of foreign investors. They are warming up to pump in more funds into Pakistan.
(vii) Crash in oil prices is a boon for the Pakistan’s economy:
Pakistan imports about 90% of its petroleum products. High oil prices leads to high fiscal deficit and corresponding high inflation.
The present price of crude oil of $50 per barrel is “like somebody handing us a gift basket,” Maheen Rahman says with a charming smile.
Maheen has forecast that oil will trade between $50 and $70 for the next five years.
“Within that band Pakistan is in an incredibly comfortable situation,” she opines.
Pakistani stocks can give 3x gains as compared to Indian stocks?
Chiranjivi Chakraborty of ET has written a piece in which he has confidently asserted that investors can make 3 times more money by betting on stocks in Pakistan than in India (see You can make 3 times more money by betting on stocks in Pakistan than in India).
He has collated the view of leading experts who have opined that though Pakistan is also a fast growing economy, it has suffered an “image” issue which has led to its “isolation” from the global financial markets. However, as the perception is changing, the Country will catch up in a hurry which may lead to upto 3x gains in comparison to India.
A similar opinion has been expressed by Rahul Oberoi of ET (see Pakistan beats India hands down in stock returns in the last 16 years).
Stock recommendations of Maheen Rahman
Maheen has recommended the following top-quality stocks as having the potential to give multibagger gains in the foreseeable future:
(i) Oil & Gas Development Company (OGDC.PK):
OGDC, a PSU, appears to be the equivalent of ONGC, India’s blue chip Petroleum giant.
It has large weightage in the KSE 100 and can “take the entire index with it”, Maheen explained.
OGDC has given a hefty YoY gain of 50%. However, it has still underperformed the Benchmark index.
OGDC looks cheap at less than nine times forward earnings, Maheen opined.
(ii) Pakistan Oilfields (POL.PK):
POL has also given hefty gains of 40% on a YoY basis. It is a “pure play” crude oil stock.
(iii) Pakistan Petroleum (PPL.PK);
PPL is an upstream producer of natural gas. The stock has also underperformed the benchmark implying that it is undervalued.
Rahman recommends holding all three stocks. “These companies still look very underpriced,” she stated.
4. Pakistan State Oil (PSO. PK):
Rahman also recommended investment in local petroleum distributors (Oil Marketing companies). She opined that these stocks will benefit from spending on infrastructure like roads and new logistics supply chains that are being built.
“It’s a direct relation to how many more cars and buses you have the on the roads,” she stated.
She recommended Pakistan State Oil (PSO. PK) as a stellar pick. PSO runs 3,500 service stations across Pakistan.
PSO is up by more than 40% over the past year. It trades at a cheap eight times next 12 months’ earnings.
5. Blue Chip Banks (the next HDFC Bank?):
Maheen Rahman opined that the next leg of the market rally could come from Pakistan’s blue chip banks. She explained that of the country’s population of almost 200 million, less than a fifth of Pakistanis hold bank accounts. The number of people investing in mutual funds is just a couple of hundred thousand.
She also emphasized that the banks will benefit from the financing of $160 billion in infrastructure projects.
Top Pakistani blue chip banks:
Maheen Rahman has put the spotlight on three Banks called Habib Bank (HBL.PK), United Bank (UBL.PK) and MCB Bank (MCB.PK).
She assured that all three Banks are powerhouses with pristine Balance Sheets, low NPAs and reasonable valuations.
How to invest in stocks listed in the Karachi Stock Exchange?
Prima facie, investing in Pakistani stocks is as easy as investing in Indian stocks. One has to open an account with a broker and a demat account. The funds have to deposited with the broker and one can use that as margin to buy and sell shares.
The procedure is explained in detail by Zafar Stocks, a broker registered with PSX. The charges for opening the account are quite nominal and so is the brokerage.
It appears that Indian investors will be classified as “foreign nationals” and have to fill in separate forms.