E Ariel Sharon Investing

A political party which occupies the right wing can engage in deals with its supposed enemies more easily than one from the center. That is the lesson of Nixon in China and Ariel Sharon in Gaza. (I misspelled his name in yesterday's blog but you know whom I meant.) Now it is Narendra Modi's turn. But before we hit the subcontinent let us glance at China.

Fitch and other raters think the China Natl Petroleum Corp $400 bn deal is good for OGZPY long term but it could hurt the Russian gas exporter's rating short term as it has to borrow money to develop the new fields. Russian companies may have difficulty raising money on international markets after the Ukraine dispute scuttled plans to borrow. Gazprom may also have to cut the dividend which last year exceeded its post-capex cash flow. The impact may also hurt lower-rated Russian sovereign debt after Putin agreed to remove the mineral extraction tax which would otherwise apply to the fields producing for China. Gazprom plans to list in Singapore thanks to its new Asian visibility and may raise capital with this.

China also produced a better (if still negative) purchasing managers index today.  We have ways to play this.

As promised yesterday, today we give you advice on buying into Pakistan, whose PM will probably be the first to attend an Indian inauguration, a major gesture from the BJP victor in Indian elections. Given Pakistani risks I'm reluctant to hop into any single US trader GDR from the Lahore stock exchange, and want a fund. There are, as I wrote for paid subscribers yesterday, 8 seasoned Global Depositary Receipt stocks US retail investors may legally buy. I think you should spread your risks.

My classmate Thalassa Ali, now a novelist, has given up being a broker and remarks that there are signs of prosperity in the country where she lived for decades: “terrible traffic due to everyone having a car or a motorcycle, and movie theaters jammed with customers.” And she is somewhat optimistic about Modi who “doesn't have to form a coalition government,” adding: “I am keeping my fingers crossed.” However she gave no stock advice.

Today there are no US-registered funds investing solely in Pakistan. Former closed-end Pakistan Fund gave investors their money back. There are funds out of Sweden and Switzerland, run by enthusiasts who have little reputation to lose, Tundra Fondes and Swiss Asia Frontier Capital Fund. They are too wild and unregulated for my taste.

And as I noted yesterday, many may have own a frontier emerging markets open-end fund, the successor of a closed-end fund we recommended before it converted. We don't cover open-end mutual funds, particularly not this one, Morgan Stanley Institutional Frontier Emerging Markets Fund, MFMIX, with a minimum initial investment level of $5 mn. In case you are not aware of my limits, I could not buy this fund today. But I do own about 1000 shares (with dividends reinvested) worth about $17,500. Pakistan is the fund's 4th largest placement, after Kuwait, Dubai, and Qatar, but it is now nearly 10% invested in Pakistan, mainly because Lahore is up so sharply.

And that is before Nahendra Modi invited Pakistani Premier Nawaz Sharif to his inauguration, the first time since 1947 that this gesture was attempted.

The former Indian Prime Minister, Manmohan Singh and the deposed Pakistani self-appointed dictator-president, Gen. Pervez Musharraf, were both born across the Indo-Pakistan border of 1947, Musharraf in Delhi and Singh in Gah, in the Punjab near Islamabad. While the details are fuzzy, Musharraf and PM Sharif came to blows over a failed surprise attack on India in northern Kashmir, leading to Sharif's ouster and Musharraf's coup in 2001.

Between the two countries, the Radcliffe Line is fought over now mainly by high-strutting high-kicking border guards competing in a ridiculous nightly can-can dance, except in an icy glacier where neither country has much zest for battle and in Kashmir. But the bitterness remains. Pakistan's ISI (Inter Services Intelligence) is powerful and often behind attacks on both India and western troops in Afghanistan. The ISI probably protected Osama bin Laden in his hideaway in their key HQ city of Abbottabad near Islamabad, the capital. The army, while currently confined to barracks, has a history of coups and interference too. While the army is formally against the Afghan Taliban, the ISI probably helps it and also likely had a role in the terrorist attack on Mumbai 5 ½ years ago which murdered not just Hindus, but also any Jews the bombers could find at Nariman House including several rabbis and the resident Lubovicher rabbi's pregnant wife, plus Western hotel, restaurant, and cafe guests and their Indian staffers, taxi drivers, cops, and innocent by-standers. In the end 257 people were killed and over 700 wounded.

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