Will Turmoil in Pakistan Affect India ETFs?

So far, the turmoil in Pakistan has not spilled over to impact India markets and the exchange-traded and closed-ended funds that track it such as (IFN) and (INP). Next door neighbor India is closely monitoring the progress in Pakistan in the coming weeks for any security challenges that may come about. Keep in mind that there are more Muslims living in India than in Pakistan and that both countries possess nuclear weapons.

A new book reviewed by the Economist argues that the country was able to flout international rules on nuclear non-proliferation because American policymakers thought that securing Pakistan's assistance in defeating the Soviet Union in Afghanistan—and, more recently, President Pervez Musharraf's help in fighting terrorism—were more important than limiting the spread of nuclear bombs.

Since the creation of Pakistan in 1947, the two countries have fought three major wars. The first two stemmed from the conflict over Jammu & Kashmir, the northernmost state of India, which also shares a border with Pakistan. The accession of Jammu & Kashmir to India in 1947 has long been disputed by Pakistan, and the region's primarily Muslim population has endured years of hardship from frequent acts of terrorism.

Since 2004, according to a message from Matthews Funds, the relationship between Pakistan and India has generally been improving. Even though formal trade with Pakistan has increased fivefold to $1.7 billion in the past three years, it is still less than 1% of India's total trade. Strained political relations have slowed development of economic linkages. Meanwhile, trade between India and China has increased in spite of existing border disputes. However, the potential benefit to trade is enormous, whether it involves Pakistani cement exports to India or Indian corporate participation in the ongoing privatization process in Pakistan.