Pakistan's KSE-100 Index Outperforms Asian and BRIC Stock Indices in 2012

Karachi's KSE-100 index surged nearly 50% (37% in US $ terms) in 2012 to top all Asian market indices. It was followed by Bangkok's SET index which advanced 36%. It also easily beat India's Sensex index which was the top performer among BRICs with 25.19% annual gain.

A string of strong earnings announcements by Karachi Stock Exchange listed companies and the Central Bank's rate cuts helped the KSE-100 index approach 17,000 level, a gain of 49.84% (37% in US dollar terms). In spite of this run-up in KSE-100, Andrew Brudenell, manager of the HSBC Frontier Markets fund (HSFAX) in London, remains bullish on Pakistani equities, according to Barron's. Pakistan is one of the cheapest markets he follows, at about seven times earnings. He notes that earnings growth has kept pace with the market. The firms, he adds, are typically cash-rich, boast strong return on equity levels in the 20% range, and pay good dividends. Here's an excerpt of a recent Businessweek story titled "Pakistan, Land of Entrepreneurs " which captures the ground reality of Pakistan's business landscape that is masked by the continuing reports of doom and gloom making up the standard mass media narrative about Pakistan: " (Arif) Habib, who started as a stockbroker more than four decades ago, has expanded his Arif Habib Group into a 13-company business that has invested $2 billion in financial services, cement, fertilizer, and steel factories since 2004. His group and a clutch of others have become conglomerates of a kind that went out of fashion in the West but seem suited to the often chaotic conditions in Pakistan. Engro, a maker of fertilizer, has moved into packaged foods and coal mining. Billionaire Mian Muhammad Mansha, one of Pakistan’s richest men, is importing 2,500 milk cows from Australia to start a dairy business after running MCB Bank, Nishat Mills, and D.G. Khan Cement. These companies have prospered in a country that, since joining the U.S. in the war on terror after Sept. 11, has lost more than 40,000 people to retaliatory bombings by the Taliban. Political violence in Karachi has killed 2,000 Pakistanis this year, and an energy crisis—power outages last as long as 18 hours a day—has led to social unrest. Foreign direct investment declined 24 percent to $244 million in the four months ended Oct. 31, according to the central bank. At the same time, some 70 million Pakistanis—40 percent of the population—have become middle-class,

A boom in agriculture and residential property. improved foreign flows in equities. It also seems that the national debt is much less of a problem given the debt-to-GDP ratio of just 30% when the informal economy is fully comprehended.” Habib says.says Sakib Sherani. it appears that the country's economy is in fact healthier than what the official figures show. KSE best performing market in Asia: Pakistan stocks gain 48 percent in 2012 0 0 By Staff Reporter Published: December 18. we have growth of 3 percent. rising consumerism. “Those who understand the difference between the perception of Pakistan and the reality have made a killing. “Despite the energy crisis. has risen elevenfold since mid-2001. 2012 KARACHI: The Pakistan’s capital market remained one of the best performing markets in Asia in 2012 with the 100-share index gaining 48 percent in terms of local currency and 37 percent in dollar terms in the outgoing calendar year with only nine trading sessions remaining. Topline Sec analyst Mohammad Danish said major boost to Pakistan equities was provided by declining interest rates that sharply came down by 450 basis points (bps) in the last 18 months (250 bps in 2012). so the field is wide open.” Sherani of Macro Economic Insights estimates the middle class doubled in size between 2002 and 2012. stocks have been buoyed by corporate earnings. “Just go to the malls and see the number of customers who are actually buying in upscale stores and that shows you how robust the demand is. better corporate earnings and relative calmness on political scenario also supported the share prices.” says Azfer Naseem. have helped Pakistanis prosper.” The KSE100. as well as jobs in hot sectors such as telecom and media. which were bolstered in turn by rising consumer spending. “Foreigners don’t come here. head of research for Elixir Securities in Karachi. a research firm in Islamabad. . the benchmark index of the Karachi Exchange. Bringing a small slice of it in the tax net will make a significant positive difference for public finances in the coming years. Over the past decade." While Pakistan's public finances remain shaky. My hope is that increasing share of the informal economy will become documented with the rising use of technology. Shares in the index are up 43 percent this year alone. Resolution of capital gains tax (CGT) related issues. Even a small but serious effort to collect more taxes can make a big dent in budget deficits. chief executive of Macro Economic Insights.

Growing demand and firm prices. improving earnings of listed textile firms on account of stable cotton prices. a total of Rs 500 million or $5 million was offered to general public. High-Net-worth Individual and local and foreign institutions. on account of improved earnings. Pakistan’s equity market saw only three initial public offerings in the outgoing calendar year 2012 as compared to four in 2011. Sharp decline in rupee since 2008. Cement stocks were among the top performers as investors re-rated the sector by 152 percent in 2012. down 42% from its peak: The Karachi Stock Exchange’s worth is now Rs 4. In the absence of vibrant derivatives market and lack of new listings. which is substantially lower than Rs 4.5 billion in 2011. http://www. up 43 percent in calendar year 2012. absence of large listings and decent dividend payouts have restricted the growth in the overall market valuation. Resultantly. volumes have jumped substantially by 121 percent in 2012 to 175 million shares a day mainly due to investors’ interest in low priced shares.dailytimes.7 billion in 2012 as compared to Rs 3.8 billion or $56 million offered in 2011. reducing cost pressures due to decline in coal prices and interest rates also helped. in spite of bull-run the volumes are still lower than average daily of Rs 30 billion witnessed in the period of 2005-07. Cement and textile remained the best performing sectors: The rally in 2012 was led by secondtier stocks as traditional sectors like exploration and banks did not outperform. Further. In terms of shares. However. an improvement of 35 percent. As a result.asp?page=2012\12\18\story_18-12-2012_pg5_2 . kept cement makers’ margin improving. increased regional demand and declining interest rates helped this sector to perform despite lower share in the overall market capitalisation. This low level of listing is seen after a gap of six years while it also compares unfavourably with last 10 years average of 11 offerings a year.Market capitalisation at $43bn. Market rising.com. Pakistan’s market capitalisation-to-gross domestic product ratio of 20 percent of Pakistan is one of the lowest in the region. textile sector gained 99 percent in 2012. Volumes improve by 35%: Average daily traded value remained at Rs 4.pk/default. 2012. During outgoing 2012.2 trillion. the trend of equity public offerings at the market remained depressed. not IPOs: Though the stock market has posted a handsome gain in 2012. recently approved EU trade package and strong textile export numbers provided further triggers to the performance. in dollar terms the market capitalisation is still down 42 percent from its peak of $75 billion seen in April 18. Further. Similarly.

Where’s the limit?: Will the KSE break the 20. 2013 Two main factors are likely to drive growth: a continued resilience in corporate earnings.000 barrier in 2013? By Our Correspondent Published: January 7. can investors expect the index to breach the 20. and an increasing likelihood of foreign investor attention. with the benchmark KSE-100 index rising 49%. LAHORE: After a blow-out year in 2012.000-point mark in 2013? Most stock market .

Two main factors are likely to drive growth: a continued resilience in corporate earnings.analysts are reluctant to say so explicitly. particularly from foreign investors. but it is only about 18. according to data released by the State Bank of Pakistan. and an increasing likelihood of foreign investor attention. For 2013. when the index may actually slide back to the 15. the outlook for key sectors appears strong.700 level by the end of calendar year 2013 – though he hastens to add that there is likely to be plenty of volatility in the earlier half of the year. Another factor at play is election spending. at least. but it is likely to benefit the economy nonetheless. who predicts that the stock market may hit the 19. net incomes for all companies listed on the Karachi Stock Exchange increased by 27. the KSE100 index would only need to have a below average year in order to breach that important psychological barrier. The devaluation of the rupee is likely to help revenue growth at companies in the energy sector as well as textile exporters.700 level. the last year for which complete data is available.3% higher than the closing level of 2012. Secular factors – such as the rising purchasing power of the middle class – are also at play and are likely to cause a renewed interest in food and consumer goods companies. Corporate earnings have grown remarkably strongly over the past couple of years. .2%. This growth may be cyclical. Given the fact that the market’s 10-year average return is 21.3%. In 2011.000-point barrier may sound dizzyingly high. The 20. though their forecasts suggest that the market may. The corresponding figure for 2012 is likely to be in a similar range. even a slight increase in revenues is likely to result in a substantial increase in profits for most of these companies. an investment bank. Fundamental factors also favour another profitable year for equity market investors. One of the more optimistic forecasts is by Syed Rehan Ali. which is likely to drive growth in cement sector stocks as the government spends more money on infrastructure projects in the run-up to the polls. judging by preliminary data. a technical research analyst at Foundation Securities. But it is not just the technical factors that favour a continued rise in the equity markets. Given high levels of operational leverage. according to BMA Capital. get close.

2 times expected 2013 earnings. even to foreign investors who have hitherto remained skittish. at least some of them are likely to turn their attention towards frontier economies like Pakistan. And then there is the expected interest from foreign investors. in turn. This is not only below regional markets but also below even Pakistan’s own historical levels. the Pakistani equity market is currently trading at 7. which means that valuations for Pakistani stocks are likely to rise. January 7th. Add in an expected dividend yield of 7. reporting by Farooq Tirmizi Published in The Express Tribune. which is looking to de-list from the Karachi Stock Exchange. According to Raza Jafri. a research analyst at AKD Securities. In 2013. 2013.Another factor at play in this sector is likely to be the more than $335 million that investors will be looking to redeploy in the food and consumer goods sector after they receive their payouts from Unilever Pakistan. Impact of Pak-US Relationship News on KSE-100 Index . is likely to turn into a selffulfilling prophecy of higher returns. That increased demand.6% and Pakistani stocks will suddenly start to look very attractive indeed. who have struggled for returns in both their own home markets as well as more established emerging markets.

000 mark in light of worsening security conditions and upcoming transfer of power at the domestic political scene.2bn worth of Pakistani shares (excluding foreign sponsors holding). Currently.html Foreign investors driving KSE towards 18. The foreigners’ holding of shares at KSE is one of its high level in spite of security issues. 2013 Foreign shareholding in Pakistan stocks is rising significantly at the Karachi Stock Exchange by 30 percent of overall market value driving the benchmark 100-index towards 18. Although the number is lower than the peak levels of US$5. cheap valuations and vibrant rural/informal economy are key factors attracting foreign fund managers towards Pakistan. The other important question that people are eager to know is which stocks foreigners prefer. Many investors are now curious to know the future direction of market beyond 18. weak macro economy and declining local currency.000 benchmark Visits 82 By Yasir Ameen February 22.8bn of which free float is US$11bn. And thanks to net foreign buying.http://southasiainvestor.000 mark but two months ahead of what has been predicted but it can reach 18. according to SBP data.com/2012/12/pakistans-shares-index-outperforms.1bn in April 2008 but at that time foreigners’ holding was 24% of the free float.000 level. The index has now reached close to 18. The capitalization of Pakistan market has now reached US$44. foreigners own US$3. Besides normal inflow of funds to Emerging and Frontier markets.000 mark in the run up to general elections by May 2013 thereby has the potential to provide 15 percent gains. .blogspot.

a stock market legend said. Arif Habib is optimistic about the recording-making journey of the equity market as he believed that market will see growth in capitalization and trading volume in months to come. In case the elections are held on time as per the constitution and there is no major disruption towards the political transition. he opined. The slight uncertainty among investors is timely transition of power which will direct equity market towards the significant growth in investment and indices positions. he said. then the foreign flows will remain decent. Chairman and Chief Executive of Arif Habib Group while talking to Weekly Pulse. economy and stock market that assembly completes its tenure. Anytime before March 16.The foreigners have bought shares worth US$117mn and sold US$89mn at Karachi bourse in 6 weeks of 2013 so far resulting in net buying of US$28mn. Arif Habib said the economy has been strengthened in real sectors in the period of present government compared with its previous government mainly in tackling challenging issues such as high oil prices and inflation. Even the stock market performs bullish in the period when the interim government assumes the power for certain days and it will do much better after the election of the new government. KSE is marching towards sustainable growth due to positive developments on the country’s political scenario particularly for setting up of interim government and subsequent holding of general election in the country. adding it is good for the country. The love for emerging and frontier markets along with pre-election buying by foreigners will be important determinant of market direction in coming few months. Hence the stock will perform positively whatever political party comes in the power for next five years. 2013. . News flow is that the government and opposition parties are in consultation and may announce a consensus candidate in next few weeks. Stock Analyst Sohail Ahmed said. The economic agenda of all political parties are more or less same including sustainability of macroeconomic indicators and resolution of energy crisis. a new caretaker government has to take charge so that they can hold elections independently. he added. he said. The stock market remains its positive growth in long-run without any external influence because the corporate profitability is tremendous in various scrips with constant honoring in the values of shares. This was stated by Arif Habib. The investment in various sectors is seemingly difficult due to high cost setting up business hence the existing companies will remain attractive in the eyes of investors for next few years. he said. The sentiments in investors are positive and strong but all these are linked to the timely transition of the caretaker government and its assurance of organizing general polls on time.

these names will be referred to the ECP (Election Commission of Pakistan). which will make the final decision within the next two days.According to the constitution. Caretaker Prime Minister is to be appointed by the President in consultation with the PM and the opposition leader in the outgoing assemblies. In next 3 days. PM and opposition parties will nominate 2 persons each to a parliamentary committee which is constituted within 3 days of the dissolution of National Assembly. In case the transfer of power. . In case of disagreement. that is selection of caretaker PM is through consensus and there is no uncertainty. committee will decide on a name and if the committee is unable to decide. Leading stock brokers and analysts said. otherwise some correction expected. it is expected the market to continue to perform well.

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