Inside Financial Markets

Pakistan equity markets provided healthy returns to the investors

PAKISTAN-ECONOMY-STOCKPakistan equity markets provided healthy returns to the investors

Though lower than the return of 49pc for each of the preceding two years, 2012 and 2013, the index gain was in line with the last 10-year average gain of 26pc and 20-year average of 21pc.

According to calculations by international market monitors, Pakistan ranked the third best performing market in 2014 and stood out among the 10 top markets around the globe.

Among the Asian frontier markets (as categorised by MSCI), Pakistan stood out as the top performer, outpacing Sri Lanka, Vietnam and Bangladesh.

Analyst Muhammad Tahir Saeed at brokerage Topline Securities observed that in spite of political upheavals, Pakistan remained one of the best performing markets led by foreign investors. “Government’s secondary market offerings, energy sector reforms and declining yield on government papers helped the bull-run in 2014,” asserted analyst Saeed.

Back of the envelope calculations showed that due to appreciation of 4pc in value of Pak-Rupee against the US-Dollar, gain in dollar terms turned out to be 31pc. Price-only (without dividend) KSE-100 Index was up 18pc (22pc in dollars) in the outgoing year.

Besides improving macros, major impetus to the market in 2014 came from higher foreign inflows. Foreign investors who hold $6.1 billion worth of Pakistan shares which accounts for 33pc of free-float and 9pc of market cap, remained net buyers in 2014. During the year, overseas investors bought $2.4bn and sold $2.0bn worth stocks, resulting in net inflow of $386m. This was in spite of $46m outflows in Dec 2014. The foreign fund managers had bought Pakistan equity in the net sum of $398m in 2013.

Market watchers said the outgoing year would also be remembered for mega public offerings led by sale of shares by the Government from its holdings. In all new offerings in 2014 stood at nine compared to three Initial Public Offerings (IPOs) in 2013. After a gap of 7 years, the equity markets raised Rs73bn through new offerings in 2014.

Analyst Muhammad Mobeen at JS Global observed that his house expects the market to gain momentum in the new year with textiles and banks as the preferred sectors.

Brokerage Sunrise Capital stated in its report that the KSE could have performed even better but for political protests and sit-ins, which scared investors. Top three contributors in terms of points to bull run of 2014 were banks, chemicals and cement sector. “Banking sector surged by 28pc or 1,517 points in CY14, chemicals contributed 843.8 points in index surged by 42pc while cement that rose by 58pc added 795 points to the index”, analysts calculated.

According to Topline Securities, the year ahead could be looked at with optimism based on improving macros and better visibility of Pakistan amongst foreign investors. Pakistan market currently trades at a forward price-to-earnings (P/E) multiple of 9.1 times for 2015 which is at a 8pc discount to MSCI Frontier Market (MSCI-FM) PE of 9.9x and at 30pc discount to its Asian peers. “We visualize KSE-100 Index to reach 36,000-38,000 points, up by 12-18pc from current levels going forward”, Topline said and put a caveat: “However the biggest risk to our positive outlook is global economic situation in light of falling oil prices. Any major crisis in global markets may force foreigners to offload their positions in all stock markets including Pakistan.”

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)