Monday, January 6, 2014

KSE-100 World's 5th Best Performing Index in 2013

Karachi's KSE-100 Stock Market Index was up 49.4% (37% in US$ terms) in 2013, beating all but four stock indices in the world. It handily beat Morgan Stanley's MSCI emerging market index which remained essentially flat. By comparison, India's main stock index rose just 8.89% in the same period. The remaining three BRIC countries--Brazil, Russia and China-- all saw their key stock indices decline in 2013.

KSE-100 vs MSCI Emerging Markets Index Source: Wall Street Journal

This is a continuation of the bullish trend seen in 2012 when KSE-100 also rose nearly 50% to top all Asian market indices. As of December 31, 2013, KSE-100 is up 329% since the end of 2008. It is being driven mainly by rapid growth in revenue and profits of the listed companies. Even after the strong run-up, the market still remains cheapcurrently trading at over nine times trailing 12 month earnings—a common valuation measure used by stock analysts, according to Wall Street Journal.

World Stock Indices Performance 2013 Source: Seeking Alpha
Dubai finished up the most in 2013 with a gain of 107.69%. Japan was up the fourth most with a gain of 56.72%, making it the best performing G7 country. The US ended up in 9th place globally with a gain of 29.6%. Of the other G7 countries, Germany finished third with a YTD gain of 25.48%, followed by France (17.99%), Italy (16.56%), the UK (14.43%) and Canada (9.55%), according to Seeking Alpha.

The fresh investor optimism in 2013 was triggered by the election of Prime Minister Nawaz Sharif whose government is seen to be business-friendly by investors and businessmen. His finance minister Ishaq Dar claimed that Pakistan's gdp growth accelerated to 5% in July-Sept quarter in 2013. It was driven by large-scale manufacturing (LSM) which grew 12.76 per cent in September 2013 from a year ago.

"Pakistan has a fairly diverse economy with a large and young population that needs to be fed and supplied basic infrastructure such as electricity," Wall Street Journal quoted Caglar Somek, global portfolio manager at Caravel Management in New York, as saying. He manages around $650 million of investments. "If you find the companies that supply those basic needs, growing at double digit with high profitability, you can buy them at valuations that are on average 30% to 40% cheaper than their emerging market peers," said Mr. Somek.

Since the general elections of May, 2013, Pakistan has seen smooth power transfer from one civilian government to another. Other major transitions include the change of President, Army Chief and the nation's powerful Chief Justice of the Supreme Court.

Power cuts are now less frequent after payment of power generation companies overdue bills by the federal government. Financing has been closed on several power projects, including ADB financing of a major coal-fired plant in Jamshoro and Chinese loans for the nation's largest nuclear power plant planned for Karachi.

Progress on economic front, however, is not matched by similar progress on the security front which remains the biggest concern for the future of the country and its economy. What is needed is a comprehensive anti-terrorism strategy and plan of action soon.

Related Links:

Haq's Musings

Foreign Investment Up, Load-shedding Down in Nawaz Sharif's First 100 Days

Pakistan to Beg and Borrow Billions More in 2013-14

Power Companies Profits Soar at Taxpayer's Expense

Does Nawaz Sharif Have a Counter-terrorism Strategy?

Pakistan's Tax Evasion Fosters Aid Dependence

Pakistan's Vast Shale Oil and Gas Reserves

Pak IPPs Make Record Profits Amid Worst Ever Load Shedding 

Global Power Shift Since Industrial Revolution

Massive Growth in Electrical Connections in Pakistan

Finance Minister Ishaq Dar's Budget 2013-14 Speech

10 comments:

Riaz Haq said...

Here's a News report on KSE shares performance:

KARACHI: Pakistan equities attracted about 11 percent of total net inflow of $3.7 billion (as of Dec 5, 2013) seen in frontier markets in 2013 and remained the most lucrative market for foreign investors, a report released on Tuesday said.

During the year, foreign fund managers bought $2 billion and sold $1.6 billion worth of equities, which resulted in net inflow of $398 million against $125 million in the previous year, said Asad Siddiqui, senior manager research at Topline Securities (Pvt) Limited while quoting a Morgan Stanley report.

As per the latest figures, foreign fund managers currently hold equities worth $4.4 billion in Pakistan, which makes up 36 percent of the free float (eight percent of total market cap). Current foreign holding is also the highest since 2008, when it was at $5.1 billion.

The market remained among one of the best performing frontier markets in the last two years. Out of 26 frontier markets as defined by MSCI (Morgan Stanley Capital International), Pakistan ranked 7th in the outgoing year 2013 with MSCI Pakistan gaining 38 percent, outpacing MSCI-FM growth by 17 percent. “This robust performance of Pakistan equities has raised many questions and now investors want to know where Pakistan stands against frontier markets on valuations,” Siddiqui said.

Over the past five years, Pakistan has traded at a discount of 32 percent to frontier markets, which has now shrunk to 20 percent. Despite this, Pakistan remains one of the cheapest markets amongst its MSCI-Frontier Markets peers from Africa, Asia and the Middle East.

Currently trading at price earning (PE) of 7.9x (multiples), Pakistan stands at 25 percent discount to Vietnam, the 2nd cheapest MSCI-FM market with 2014 PE of 10.6x. On the other hand, Pakistan trades at a discount of more than 50 percent against its most expensive FM peer like Kuwait, trading at 2014E PE of 16.9x.

Pakistan still remained one of the cheapest markets in MSCI-FM on the basis of PE and was therefore likely to attract interest from fund managers wanting exposure in markets that were resilient and not directly affected by global factors.

The KSE remained a part of middle-tier markets called emerging markets from 1994 till the crisis of 2008 then it lost its status and came in the level of basic markets called frontier markets, said one official of the KSE.

There is requirement of having three companies with each company having free-float capitalization of $898 million or above for becoming eligible for emerging market index and Pakistan market’s top nine companies contributed total market capitalization of $5,259 million but their free-float remained below the requirement. Average market capital of nine Pakistan companies was $584 million and their free-float is around 30 percent or around $175 million only.

Pakistan’s top nine companies with higher market capitalization included Oil and Gas Development Company Limited (OGDCL), MCB Bank Ltd, Fauji Fertilizer Co, Pakistan Oilfields, United Bank, Hub Power Co, Pakistan Petroleum Limited, Engro Corporation and National Bank of Pakistan...


http://www.thenews.com.pk/Todays-News-3-225092-Pakistan-among-top-performing-frontier-markets

Riaz Haq said...

Here's an Economist piece on the total worth of free-floating trade-able shares being so small that it;s comparable to the valuation of a single western corporation:

Investors love the promise of high returns from emerging-market equities, but there are not many of them to buy. Especially if you exclude stakes held by governments, the market capitalisation of bourses beyond the rich world is tiny. Just how tiny is apparent from the map below: in many emerging markets, the value of all the freely traded shares of firms that feature in the local MSCI share index (which typically tracks 85% of local listings) is equivalent to a single Western firm. Thus all the shares available in India are worth roughly the same as NestlĂ©; Egypt’s are equal to Burger King. This suggests that emerging economies need deeper, more liquid markets-and investors need more perspective.

http://www.economist.com/news/finance-and-economics/21594476-scarce?fsrc=scn%2Ffb%2Fwl%2Fdc%2Fscarcessharesemerginmarket

Riaz Haq said...

Japanese companies see Pakistan as the second best market for business growth in Asia, according to JETRO as reported by Pakistan Today:

Pakistan has been ranked second in the world in terms of business growth in a survey conducted by the Japan External Trade Organisation (JETRO).

The current survey – which examined records of 9,371 Japanese firms operating across the world – put Pakistan just behind Taiwan in terms of business generated leaving behind both India and Japan, media reports said.

The JETRO has been conducting such surveys since 2013. Pakistan’s data was generated from 27 Japanese firms doing business here. The results found that 74.1pc of the Japanese companies estimated operating profit in 2013, allotting second rank to Pakistan only after Taiwan (81.8pc).

Compared to this, 60.7pc Japanese firms in China and 45.8pc in India made operating profit in 2013. If the survey is any guide, not only have a majority of the already present Japanese investors in Pakistan posed confidence in terms of guaranteeing business opportunities, they have also declared their intentions to expand their business.

Kohat Tunnel and Indus Highway are two noteworthy projects being carried out with Japanese loan. Likewise, second biggest loan of $ 34 million has been given in four years by Japan for coping with the power crisis.

A mega $ 2 billion project of Karachi Circular Railway is also on the horizon soon and will be a big boost in Japanese interests in Pakistan.

“Media’s voice is louder than the findings of our survey,” said Naoyuki Maekawa, senior coordinator for South Asia in JETRO.

JETRO has been urging Japanese investors to benefit from the conducive business environment in Pakistan.

There are more than 20,000 Japanese companies in China and over 1000 in India. There is an increase of 100 Japanese companies in India every year, said JETRO official. Apparently, China is a hot destination for investors but many want to pull out due to various laws.

“It is easy to invest in China and difficult to pull out,” said Yoshiji Nogami, former foreign minister of Japan and currently President of Japan Institute of International Affairs.

While Pakistani laws are more favorable for foreign investors, nevertheless the country has so far been able to convince only 70 Japanese companies for investment, majority of them in manufacturing sector, automobile industry in particular.

Not only they noted growth in their existing business, 70.4% Japanese investors in Pakistan forecast further improvement in their business during 2014.

Business confidence exceeds 40 points in Cambodia, Myanmar and Pakistan, JETRO’s survey found explaining the feedback collected from Japanese investors already doing business in the respective countries.


http://www.pakistantoday.com.pk/2014/01/31/business/jetro-growth-survey-ranks-pak-2nd-in-the-world/

https://www.jetro.go.jp/en/reports/survey/pdf/2013_12_27_biz.pdf

Riaz Haq said...

Here's an Express Tribune story on inflows into Pakistan Development Fund:

As the State Bank of Pakistan remains tightlipped over the source and purpose of funding, Pakistan received another tranche of $750 million in the newly-established Pakistan Development Fund (PDF), taking the total contribution to $1.5 billion so far.
Highly-placed sources told The Express Tribune that friendly countries have injected another sum of $750 million in the PDF – an account opened to channel money from abroad. The last tranche was received in February that stabilised the dwindling official foreign currency reserves.
It is the first time that any country has generously given $1.5-billion assistance to Pakistan within one month, as Islamabad never received such an amount as ‘upfront’ payments. The US, which remains the largest contributor, always gave amounts in tranches spreading over several years. Under its five-year, $7.5-billion Kerry Lugar aid package, Washington gave less than $2.5 billion in government-to-government assistance in over three years.
However, it was not clear whether the money received is a grant or depositary loans aimed at temporarily bailing out the country.
The officials, seeking anonymity, confirmed the receipts but none of the concerned government agencies came on the record.
SBP chief spokesman Umar Siddiqui did not respond to queries regarding receipt of the $750-million second tranche.
However, a statement issued by the Ministry of Finance, quoting Finance Minister Ishaq Dar, said, “The government of Pakistan has implemented concrete steps to improve the overall external position by ensuring substantial capital and financial inflows in the country.
“As a result, reserves have improved substantially in the last one month. This has been made possible by not only receiving larger inflows from multilateral and bilateral resources; but also through attracting forex flows through the capital markets and better home remittances.
“The forex reserves of the country have improved from $7.59 billion on February 7, to $ 9.37 billion on March 7. The efforts of the government have started to show positive results and are on track to deliver what we had announced earlier that our forex reserves will reach around $10 billion by the end of March.”
Dar’s statement also came on back of the rupee strengthening to Rs101 against the US dollar in the open market. However, the finance minister’s earlier claim, which he made last year that the dollar would be brought down to Rs98, still
remains elusive....


http://tribune.com.pk/story/681263/pakistan-development-fund-another-tranche-of-750m-makes-way-into-public-purse/

Riaz Haq said...

Here's an AFP report on Pakistan economic recovery:

Pakistan's finance minister Ishaq Dar on Wednesday said he was optimistic about an economic recovery after the rupee breached the psychologically important 100 to the dollar mark.
The currency had been losing its value against the greenback since Sharif's PML-N government came to power in June last year, sliding from 97 rupees to the dollar to a low of 108 in December.
Since then it has mounted a recovery and as of Wednesday evening the rupee was trading at 97.90 to the dollar.
Addressing a press conference Wednesday, Dar said: "The price of onions, tomatoes and dollars has been brought down to the level when Prime Minister Nawaz Sharif took oath."
"It is a positive development for the economy and will boost investors' confidence into Pakistan," Dar said, adding the government was not resorting to injecting reserves from the state bank in order to stabilise the currency.
"We did not use State Bank money to strengthen the rupee, but persuaded exporters to bring back their money to Pakistan and checked currency speculation, which resulted in the rising value of the rupee," he added.
Dar said that revenue from tax collection, which has traditionally been problematic, had increased by 17.7 percent and the budget deficit was down to 3.1 percent as compared to 4.1 percent in the first eight months of last year.
He added that overseas remittences by Pakistanis abroad stood at $9.23 billion, representing an 11 percent growth compared with last year.
Dar said that exports have also shown a 6.2 percent growth while the rate of inflation was currently 8.6 percent.
"We are on track to achieve six percent GDP growth rate in three years and Pakistan can emerge as a strong economy in the region," Dar said.
The IMF approved a $6.7 billion bailout loan package for Pakistan in September last year to help the struggling nuclear-armed country achieve economic reforms, particularly in its troubled energy sector.
The IMF said Pakistan's economy was picking up, with growth expected to reach about 3.1 percent in 2013/14 compared to its earlier estimate of 2.8 percent.
Cash-strapped Pakistan, plagued by a bloody homegrown Taliban insurgency, is battling to get its shaky economy back on track and solve a chronic energy crisis that cripples its industry.
The IMF made an initial payment of $540 million, and in November fund officials said during a monitoring visit that Pakistan was "broadly on track" with reforms.
In December, Pakistan received $554 million as a second tranche of the loan.


http://www.google.com/hostednews/afp/article/ALeqM5jBS24dVjJSauNIc7HRg7JH24PkMw

Riaz Haq said...

Pakistan's exports up, FDI up in first 8 months of fiscal 2013-14:

Pakistan's trade deficit fell 4.89 percent in the July-February of the fiscal year 2013/14 to $12.542 billion compared with a deficit of $13.187 billion for the same period last year, according to the Pakistan Bureau of Statistics.

Exports rose to $16.866 billion in (July-February) from $15.882 billion, and imports to $29.408 billion from $29.069 billion.

On a monthly basis, the trade deficit fell to $1.433 billion in February from $2.076 billion the previous month. Exports totaled $2.167 billion in February and imports were $3.600 billion. (Compiled by Reuters Karachi newsroom)

http://in.reuters.com/article/2014/03/17/pakistan-trade-idINL3N0KW1XT20140317

Foreign direct investment (FDI) in Pakistan increased by 17.9 percent to $606.3 million during the first eight months of the current fiscal year, according to figures released by the State Bank of Pakistan (SBP) on Friday.

FDI inflows stood at $514.2 million during the same period of last fiscal. FDI has been on the decline since 2008 in the wake of security concerns, weak law and order situation and energy and power outages in the country. And while the increase in the pace of FDI inflows is reasonable, the volumes the country received during July-February FY14 are far from satisfactory, economists say.

Between July 2013 and February 2014, overseas investment by businesses declined by 11 percent to $1.262 billion against $1.418 billion in the corresponding period last year. Similarly, outflow was recorded at $656.2 million in the period under review against $904.4 million for the same period in the previous fiscal, revealed SBP data.

The oil and gas exploration sector emerged as the biggest recipient of FDI with $296.2 million, followed by the financial sector with $102.8 million in the July-February period in FY14. Foreign investment in food, chemical and tobacco and cigarette sectors was recorded at $75.1 million, $71.6 million and $55.5 million, respectively.

FDI stood at $79.2 million in February 2014 against outflow of $14 million in the corresponding month of the last year. The numbers on foreign investment showed that portfolio investment fell drastically from $169.9 million for the July-January period in FY13 to $54 million over the same period in the current fiscal – a drop of over 68.2 percent.

Total foreign investment for the first seven months of the current fiscal was up 6.5 percent to $724.6 million against $680.4 million for the same period in the previous fiscal.

“The level of FDI is still too low to have much of an impact on the country’s financial account,” said economist Muzzamil Aslam.

However, foreign portfolio investment at the Karachi Stock Exchange is encouraging despite no listing of new companies at the local equity market, he added.

“In the financial sector, the reason behind the rise in FDI is investments by foreign shareholders and sponsors in banks which were short of the minimum capital requirement fixed by the State Bank of Pakistan for the year 2013,” he said.

The sponsors of the noncompliant banks issued right shares to raise capital. “Once the process of the privatisation gets momentum, foreign investors will come to the country, subsequently improving financial account prospects,” he added.

http://www.thenews.com.pk/Todays-News-3-238245-FDI-rises-by-17-percent-in-eight-months

Riaz Haq said...

Morgan Stanley doubling of #Pakistan's weight in #MSCI index drives foreign inflows into #Karachi. BAHL, Lucky, PSO

MSCI has agreed to implement all proposed changes to the Frontier Market (FM)Index,  which  along  with  the  upgrade  of  Qatar  and  UAE  would  increase Pakistan’s weight to 8.88% from 4.29% currently.  
ƒ The changes will be implemented in 7 monthly phases, from May‐14 and will be completed by Nov‐14.  Pakistan’s weight would increase to 7.28% in May‐14 due 
to Qatar and UAE upgrade, whilst 8.86% will be reached over the next 6 months.  
ƒ Amongst specific stocks, there are 3 additions from Pakistan to MSCI FM, incl. BAHL, Lucky, and PSO.   
ƒ Although most frontier market funds are actively managed and off benchmark,such  a  sharp  weightage  increase  would  significantly  increase  Pakistan’s prominence on the frontier map, and should be a fillip for the equity market.  

http://www.kasbdirect.com/downloads/research/MS03-04-14.pdf

Riaz Haq said...

Pakistan's KSE-100 shares index crosses 30,000 mark to set new record


KARACHI: The long-awaited moment for the stock market arrived on Thursday when the KSE-100 index performed the incredible feat of crossing comfortably over the 30,000 points level.

The ravaging bulls tossed the index up by 400.94 points or 1.35 per cent to 30,177.11. The volume also jumped 83pc over the previous day to 206 million shares.

The immediate trigger for the bulls was provided by the global rating agency Moody’s upgrade of outlook for Pakistan’s economy to ‘stable’ from ‘negative’. It was sweetened further by the rating agency’s outlook on five Pakistan banks to ‘stable’ from ‘negative’.

All five banks were major gainers on Thursday with ABL up by Rs5.87; HBL by Rs3.66; MCB by Rs5.41; NBP by Re0.69 and UBL by Rs8.35. Elsewhere, PSO rallied by Rs7.67 and Lucky Cement advanced by Rs15.93. Brokers said that cement shares were powered by expectations of healthy June results.

Most market gurus admit that foreign investors have been the engine that drove the market to its all-time high. On Thursday, foreign funds bought equity worth $6.44m, which raises the total inflow to $33.7m only during the first three weeks of July.

-----------

Mohammad Sohail, CEO at Topline Securities, observes: “After increasing by 49pc in 2012 and again 49pc in 2013, local market index is up 19pc in this calendar year to date.”

He pointed out that in the last two and a half years, the index had shot up from 11,000 points to reach 30,000 led by “foreign flows, smooth political change and recent signs of economic recovery.”

Khurram Schehzad, chief investment officer, Lakson Investments, pointed out that the Pakistan bourse had benefitted from increase in weight in the MSCI Frontier Market index which elated Pakistan to third place, after Kuwait and Nigeria.

He observed that since January 2012 when the market first picked up momentum, foreign inflows into the Pakistan market amounted to the tall order of $826m.

http://www.dawn.com/news/1119956/kse-100-index-crosses-30000-level

Riaz Haq said...

A stock market that has about tripled in value in the last four years is not usually the first thing that comes to mind when global investors and business people think of Pakistan. The stock market has made great strides and some still consider it significantly cheaper value than its peer markets. Meanwhile, outsiders looking for signs that Pakistan is politically stabilizing will find mixed messages at the surface of the news.

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Mr. Mohammed Sohail, CEO of Topline Securities Pakistan, says:

The sit-in [that began in Islamabad on August 15] is gradually diluting because the two parties which started the gathering [the PTI and PAT] are there more than six weeks. The media coverage is declining. Investor focus has also shifted away and returned to business as usual. There was an initial correction of 8% to 9%, but now the market has recovered, and is where it was when these protests started. This shows the market is resilient.

The market stabilized in part because the military clarified they don’t intend to intervene or engage in any unconstitutional matter. These protests are democratic, as everyone in a democracy has a right to protest.

The government is now more transparent and more careful as a result of the protests. This is the beauty of democracy: the opposition criticizes the government in power and the government in power improves themselves. For example, the PTI has criticized Prime Minister Nawaz Sharif for having too many family members in important posts and I think this has been accepted as an issue the government will try to improve. Effective opposition criticism is a side of politics we expect to see more of in the future.

Frankly speaking, I see these protests as a major development. In 60 to 70 years, Pakistan has not seen pure proper democracy. If you look at other democracies, these type of protests and political exchange is normal. It is only six or seven years now that we have this proper democracy. This is really the first time in Pakistan’s history that we can have this kind of democratic interaction. When the opposition protests, it provides a lesson for the rulers to be more active, to think about all people.
------

Mr. Faisal Shaji, a research analyst at Standard Capital Securities in Pakistan, offers a different view:

The protests are in a way positive for real democracy in the country since it has created lot of awareness among the masses. The incidence of rigging is on a wide scale and accepted by all political groups. These protests were previously unthinkable. People think that the overall system is rotten and hence protestors are gaining strength.

The military handled the protests very wisely as the current chief of the army staff [COAS] is pro-democracy. The military wants political parties to resolve the issues politically. But we think the situation is going towards new elections that will use a biometric system of thumb impression which is the ultimate solution to the problem.

------
Mr. Sohail of Topline Securities maintains confidence in Pakistan’s capital markets moving forward:

Things that were held up due to the protests – IPOs, privatizations, reforms, the $800 million share sell of our largest oil and gas company OGDC – have now resumed. When the OGDC deal is executed, I think that will give a very clear signal to the international business community that the protests may still be going on, but investment and business already are operating as usual.

Pakistan is an unexplored market by most outside investors that is not marketed properly. Compared to peers, the market is very cheap. Pakistan’s markets trades at a price/earning multiple of 7.5 times; a 30% to 40% discount to Sri Lanka, Bangladesh, Nigeria and Vietnam. For me, from an investor’s point of view, the next 24 months look very positive for the equity markets.


http://www.forbes.com/sites/jonspringer/2014/10/02/investors-see-positive-signs-for-pakistans-democracy/

Riaz Haq said...

From Barron's:

As for Pakistan, any roadshow involving Pakistan “is one of confirming and denying prejudices more than the seeming paradoxes of stock market performance over the last 5 years,” Auerbach says. Despite that, Pakistan could move from frontier to emerging market within a mere “couple of years.” Auerbach recently traveled with the chief executive officer of its new Pakistan partner, Topline Securities, and offered these observations:

” … Client queries generally oscillated around the evolving political situation and clearly valuations and yield have not meaningfully tipped the scales for an outright portfolio bet on the country for most investors … Over the next 6 months $2-2.5 billion of new float will come on stream from Pakistan through divestments which should take its MSCI frontier market weightage higher to 9-9.5% with its subsequent effects on passive flows. Subject to qualitative criteria being met, Pakistan could re-enter the emerging market indices in a couple of years. Energy continues to remain the fundamental crippling effect on the economy and we are unlikely to see a solution at least over the next 4-5 years.”

http://blogs.barrons.com/emergingmarketsdaily/2014/10/28/why-indonesia-isnt-india-pakistan-isnt-emerging/