Karachi :  Foreign investors are pushing funds back into Pakistan stocks, setting the market up for its second-best year for inflows in a decade, drawn by cheap valuations and some economic and security improvements.

Such investments may be paying off as well because the main Karachi stock index is one of the few markets in Asia showing a rise since the beginning of the year. While the benchmark MSCI Asia ex-Japan index is down 11 per cent this year, the KSE is up 3 per cent.

"Pakistan remains one of the cheaper markets in Asia and emerging markets with an improving domestic situation and a stabilising economy," said Mark Mobius, executive chairman at Templeton Asset Management.

Net foreign portfolio investment into the stock market reached more than $530 million (Dh1.9 billion) in the first 11 months of 2009-10, compared with a year-earlier outflow of $408 million.

If that holds to the end of the July-June fiscal year, it would mark the biggest net foreign investment in more than 10 years, apart from 2007.

Brink of default

The government has pulled back from the brink of a debt default thanks to International Monetary Fund (IMF) emergency funding and is seeing some success in military operations against Taliban militants behind bomb attacks across the country.

A government led by the party of assassinated former prime minister Benazir Bhutto has proven more resilient than critics predicted and recently introduced constitutional reforms to bolster parliamentary rule, and stability.

The powerful military, which has ruled for more than half of Pakistan's history, is seen as largely satisfied with the civilian government and loathe to step back in to politics while it hands are full battling militancy.

The economy is also pulling out of the global downturn and this year the government expects growth above 4 per cent compared with record low growth last year of 1.2 per cent.

The Karachi stock market has more than doubled from lows hit last year during the worst of the global crisis, although many stock markets have seen similar gains.

To be sure, Pakistan remains one of Asia's riskiest investment destinations, Reuters surveys show.