The first comprehensive study about returns of stocks and bonds in Pakistan has been recently published by Magnus Investment Advisors Limited (Magnus). The research provides data for equities starting July 1965 and for bonds starting January 2001. The study shows that long term real PKR return (after inflation adjustment) on local equities ranges between 4.82 % to 5.69 %. The treasury bills have provided negative returns. The real return on 5 year and 10 year PIBs is 2.19 % and 3.43 % respectively. The study also provides nominal and USD returns. Issues such as ‘Equity Risk Premium’ and relevance of ‘Purchasing Power Parity’ in the context of local securities market are also dealt with. The study also provides an asset allocation frame-work for local trustees. The most interesting part is the analysis of equity returns in Pakistan with other emerging markets and investment in Pakistani equities from the perspective of foreign investors. The study conclusively demonstrates that Pakistan stocks do not represent any unusual risk in the universe of emerging markets. Pakistani stocks should get one of the highest allocations among emerging markets from the perspective of US investors. The study is not only useful for local trustees of retirement funds and charitable institutions but it also fills a major gap for local business schools where so far graduates had little knowledge and understanding about risks and returns of local capital markets. The study is also a useful read for the Ministry of Finance, SECP and BOI officials who are called upon to promote investment in Pakistan from time to time.
