By FORBES.

Pakistan’s equity market has been outperforming China’s and India’s markets by a big margin in recent years. In the last twelve months, Global X MSCI MSCI +% Pakistan ETF was up 20%, beating India’s and China’s comparable ETF’s by almost two to one – see table.

That may come as a big surprise to some. Pakistan has been suffering all sorts of terrorist attacks, which makes it a very unstable country to put your money in. And it has been lagging behind both India and China in key macroeconomic metrics like GDP growth rates and unemployment.

What does the collective wisdom of markets see in Pakistan’s markets that others are missing?

A few things. First, terrorist attacks don’t usually affect financial markets, unless they are disruptive to trade, which hasn’t been the case in Pakistan.  Second, Pakistan is a frontier rather than an emerging market, and therefore, favored by the numbers game. Third, its market reform efforts have been getting a couple of votes of confidence from overseas like $1 billion in support from the World Bank – and a couple of domestic acquisitions from foreign suitors like the acquisition of Karachi’s K-Karachi by Shanghai Electric Power Co. This has all been music to the ears of foreign investors.

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