Investors may jump in as returns recede from world-beating Pakistan stocks

The rally that’s helped Pakistan stocks trounce the rest of the world in the past three months isn’t done yet, according to one brokerage.

Large investors, including mutual funds and insurers, are expected to jump in as double-digit returns from fixed income have begun to ebb away, A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities Pvt. said in an interview.

Pakistan’s KSE-100 Index has advanced to the highest level in seven months, after falling to the lowest in almost five years in August, amid attempts by the government to stabilize the economy with a $6 billion loan from the International Monetary Fund after a deficit blowout. At the same time, bond yields have begun to fall after peaking around 14% mid-year, making debt investments less attractive.

“Banks are rethinking their strategy. They have to look at riskier assets now,” said Soomro, who spent about a decade as a fund manager at companies including Tundra Fonder AB. “So, the stock market is a tempting bet.”

Foreign investors have bought $64 million of the nation’s stocks this year, set for the first annual inflow since 2014. Their purchases will gather pace February after the nation’s next review by the Financial Action Task Force, Soomro said.

Pakistan made just enough progress on global anti-money laundering and counter-terrorism financing standards in October to escape being placed on a blacklist. Still, the watchdog asked the nation to complete its action plan by February.

London-based Oxford Frontier Capital bought about a 40% stake in KASB Securities to relaunch the brand that was once the largest domestic brokerage in Pakistan. U.K.-based Sturgeon Capital also acquired a minor stake in KASB earlier this year.

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