The killing of Osama bin Laden is a positive event for Pakistan's economy and stock market, despite doubts about whether the country's military was complicit in hiding the Al Qaeda leader, according to a strategist.
Mark Matthews, equity strategist at Macquarie, said the positive comments from top U.S. officials including Secretary of State Hillary Clinton on Pakistan's role against terrorism would eventually lead to the release of much-delayed financial aid for the country. That, in turn, would help the government lower its fiscal deficit and boost the economy.
"For about 5-6 months now, the American's and coalition money have not been released into Pakistan. And Pakistan has a very wide fiscal deficit. It's 6.1 percent of GDP and it is the major issue overhanging their stock market," Matthews added.
The aid package worth $7.5 billion over 5 years has been promoted by Democrat Senator John Kerry and Republican Senator Dick Lugar. But it's been in limbo because of U.S. concerns about corruption in Pakistan.
Once, that's resolved, Matthews expects the stock market to benefit. "There are lots of gems in that country. There are probably more gems there, stock-wise, than any other country in Asia," Matthews told CNBC's Bernie Lo.
The Karachi stock index rallied late last year along with other emerging markets, but so far this year it has dropped 6 percent because of rising fuel prices and a growing budget deficit. According to Macquarie, Karachi's stock index not only offers value, but also many well-run companies.
For investors looking for stocks with volume, Matthews suggests looking at Pakistan Oilfields . He likes this company as it has a daily turnover of $5 million and trades on about 5x earnings, with a 9.5 percent dividend yield.
And for investors who can stomach the illiquidity in the small-cap space, he recommends Askari Bank .
"If you annualize that (the bank's first-quarter results), that is on 4x PE and their asset quality has held up remarkably well, NPLs are very low and its at a 40 percent discount to book," noted Matthews.
But he also says investors need to be cautious, and he said he was recommending taking only small positions. (Watch full interview here.)