This is part four of a undetermined number of posts explaining the pros and cons of investing in different markets. First we did how to invest in Poland, then Turkey, and then Russia. Next up: HOW TO INVEST ON THE MOON, MAN (takes bong hit).

Today’s topic is how to invest in Pakistan, a country that alternates between wanting to destroy the west completely and hoping to be our new best friend. THANKS FOR HARBORING BIN LADEN, JERKS.

Let’s be honest here. When you think of Pakistan’s economy, something like this probably comes to mind:

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The country is also famously corrupt. They might hate India, but they’ve got similar views on how to run a country. This has apparently been getting better since the Pakistan People’s Party was voted out of office back in 2013, but it’s still rampant. Palms are greased in Pakistan more often than in mob movies.

Pakistan is still pretty poor, but that’s changing. GDP per capita is about $1,500. Pakistan’s large population of roughly 200 million people mean it has roughly the world’s 25th largest economy. Economic growth in 2015-16 was 4.6% and is projected to grow at above 5% over the next few years. Investment dollars are pouring in, mainly from China.

It’s an old school economy. Services make up about half of GDP, with industry making up a little over a quarter and farming making up the rest. You need a decent amount of agriculture to feed 200 million people.

The country also spends a lot of money on its military. It has nukes and maintains one of the world’s largest armies. Keep in mind that Pakistan is officially a Muslim country, which could mean increased tensions along the line.

We normally use CAPE ratios to determine if a country’s stocks are cheap. Russia, Turkey, and Poland’s stock markets were cheap based on an average of trailing earnings over the last decade. Pakistan doesn’t show up on any of the stats, so we really don’t know if it’s cheap or not. It probably is because it’s so overlooked, but we really don’t know.

How to invest in Pakistan

When I did these before I’d highlight a couple of local companies I found interesting. I’ll do the same here, but I will say that it’s going to be very hard for the average person to actually invest in Pakistan. Interactive Brokers is the ticket if you want to invest in certain markets across the world. It offers direct access to every major stock market in the world and a lot of the smaller ones. It does not offer access to Pakistan’s stock exchange, which is located in Karachi.

The good news is the stock exchange seems pretty friendly to foreign investors. And it actually has an English webpage.

Let’s start with Dolmen City REIT, the country’s only real estate investment trust. Shares trade hands at about $11 each with a net asset value of more than $18. They pay a 9.5% dividend too, which is virtually all of its earnings. It trades at a pretty attractive P/E ratio, too. It owns Pakistan’s largest mall, a facility that looks every bit as nice as anything we have here.

DG Khan is one of the country’s largest cement producers, making 4.4 million tons of the stuff last year. Shares trade at $215 each. It earned $20 per share and has a break-up value of $150 per share. Balance sheet is great too with a debt-to-equity ratio of just 10%. Oh, and it grew sales 15% last year. That stock would trade at 25 times earnings here in Canada.

So yeah, there are some bargains in the country. There’s just no easy way for regular folks like us to access them.

The ETF route

There’s really only one way for you to invest in Pakistan. It’s gotta be done through an ETF. And even that’s a little tricky.

As far as I can tell, there’s only one Pakistan ETF available. It is the MCSI Pakistan ETF (NYSE:PAK), and while it does offer access to the country, it comes with a few problems.

First, let’s talk a little about it. It has an average price-to-earnings ratio under 12 and trades at about 1.75 times book value. Largest holdings include Lucky Cement, a handful of the country’s big banks, the Pakistan State Oil Company, and something called Hub Power Company. It’s done pretty well over the past year too, rising some 25%.

Now for the bad news. The fund’s MER is close to 1%. The reason why it’s so high? The damn thing is tiny. It has 700,000 shares outstanding for a market cap of $6.65 million. Liquidity is a concern for anyone buying more than a couple hundred shares.

Wrapping it up

Pakistan is not a hot investment destination. That much is obvious.

You’ve really only got one choice if you want to invest in Pakistan, and that’s through a crummy ETF with a high management fee. There’s a lot to like about the country though, including a young population, a rapidly growing economy, and a less corrupt government.

It also has warts, I’m the first to admit that. It’s not all sunshine, lollipops and kitty cats. But if you held a gun to my head (please don’t) and forced me to put all my money in an S&P 500 ETF or a Pakistani one over the next 30 years, I’d pick Pakistan in about a second. It’s got far better growth potential and a much lower price.

Tell everyone, yo!