Donald Trump's surprise U.S. election win put the kibosh on a late year market rally in Asia, but Pakistan shares still managed to be the region's 2016 star outperformer.
The "Trump Tantrum" spurred outflows from emerging markets globally. The selloff was partly driven by expectations the incoming administration would pursue more fiscal spending, implying higher U.S. interest rates, higher inflation and a stronger dollar. That would hurt the ability of emerging-market companies to service dollar-denominated debt and spurred outflows from the segment on the prospect of higher, less-risky returns on Treasurys.
At the same time, Trump's aggressive campaign rhetoric, particularly against China and Mexico, had indicated he might pursue a trade war, which would be negative for Asia's export-dependent nations.
But despite the tantrum dampening Asia markets, shares in Pakistan surged, even though the country briefly faced its own Trump moment. In early December, the country's government reported that the president-elect told Prime Minister Nawaz Sharif that he was willing to play "any role that (Sharif wanted him) to play" to resolve Pakistan's problems. The remarks, if accurate, could aggravate hostility between arch-enemies Pakistan and India.
Even with the hiccups, the Karachi All-Share Index had surged more than 45 percent for the year before Friday's open, making it among the world's best-performing markets.
The gains were driven in part by expectations for the market to regain the "emerging market" label.
In 2008, the Karachi Stock Exchange was demoted to frontier market status, from emerging market, by MSCI after the exchange had imposed a market floor rule, which prevented shares from falling, in response to gyrations caused by the global financial crisis.
But MSCI announced mid-year that Pakistan would regain the emerging-market classification in the middle of 2017, indicating operational improvements and increased availability for foreign investors, Credit Suisse noted in a report in December.
The investment bank also noted that surveys have shown positive changes in sentiment over the government's economic competence over the past three years.
Credit Suisse, which still ranks Pakistan as a frontier market, noted that the country has a cluster of "highly profitable value-creative corporates," outperforming most of its frontier-market peers.