IMF cycles and Pakistan rally
Pakistan has spent much of its post‑Independence history lurching from one balance‑of‑payments crisis to another, marked by weak exports, recurring current account blow‑ups and repeated recourse to the IMF.
In his latest ‘GREED & fear’ newsletter, Wood points out that these very bailout programmes often create powerful trading windows for investors willing to buy into crisis.
Using the latest IMF package as an example, Wood highlights that since the Fund programme agreed in September 2024, the MSCI Pakistan Index has surged 84% in US dollar terms. Over the same period, Pakistan has outpaced MSCI India by a massive 124 percentage points in dollar returns, underscoring the torque available when sentiment turns from despair to mere survival.
Also Read | Sensex @ 95,000 in 9 months? Morgan Stanley’s Ridham Desai says bull market coming
India vs Pakistan: structural vs cyclical
Wood stresses that Pakistan’s recent outperformance needs context: since the start of this century, India has beaten Pakistan by 653% in US dollar terms. That gap reflects India’s stronger growth model, deeper reforms and far more consistent corporate earnings trajectory.
Even after a “disastrous” first quarter in which India was Asia’s second‑worst market after Indonesia, Wood remains marginally Overweight India in his Asia Pacific ex‑Japan portfolio. He argues that aggressive foreign selling has driven a meaningful de‑rating, with the Nifty one‑year forward price‑earnings multiple now around 18.3 times, close to its 2015–19 pre‑Covid average of 16.8 times.
Foreign investors have already dumped about $18.5 billion of Indian equities so far this year, which he believes sets up India as a “reverse AI trade” beneficiary if the global artificial intelligence capex boom peaks and money rotates out of expensive tech.
Also Read | Is Nifty’s cheap-looking valuation a mirage? Why $100 oil could trap value hunters
Ceasefire, geopolitics and market optics
The Jefferies strategist frames Pakistan’s latest diplomatic moment as part of a larger “TACO” theme – markets’ recurring belief that geopolitical crises will be contained. He says the Pakistan‑brokered ceasefire in the Iran conflict, while fragile, has postponed an “apocalypse” scenario and eased energy market fears, a clear positive for oil‑importing India.
From New Delhi’s perspective, however, Wood suggests it is “galling” to see a chronically fragile neighbour suddenly gain centre‑stage geopolitical relevance. Pakistan’s significance, he writes, stems from its nuclear arsenal – an estimated 170 warheads – and a standing military of roughly 660,000 personnel, which gives Islamabad leverage far beyond its economic weight.
Trading Pakistan, owning India
For portfolio strategy, Wood’s message is that Pakistan is a tactical, IMF‑cycle trade, while India remains the structural growth story in South Asia. He flags Pakistan as a market that can be “profitable to trade around IMF bailout cycles”, but cautions that its long macro record still compares poorly with India’s compounding over the past two decades.
In his latest asset allocation, Wood keeps India slightly Overweight and Pakistan outside the regional benchmark, while highlighting that IMF‑linked rebounds across frontier and distressed markets can offer sharp, if volatile, upside. For the emerging markets bull, India stays the core South Asia bet, but Pakistan’s IMF bailouts can periodically turn its market into a high‑octane satellite play.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
