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, says Sakib Sherani, chief executive of Macro Economic Insights, a research firm in Islamabad. A boom in agriculture and residential property, as well as jobs in hot sectors such as telecom and media, have helped Pakistanis prosper. “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,” says Azfer Naseem, head of research for Elixir Securities in Karachi. “Despite the energy crisis, we have growth of 3 percent.”

Sherani of Macro Economic Insights estimates the middle class doubled in size between 2002 and 2012. “Those who understand the difference between the perception of Pakistan and the reality have made a killing,” Habib says. “Foreigners don’t come here, so the field is wide open.” The KSE100, the benchmark index of the Karachi Exchange, has risen elevenfold since mid-2001. Shares in the index are up 43 percent this year alone. Over the past decade, stocks have been buoyed by corporate earnings, which were bolstered in turn by rising consumer spending."

While Pakistan's public finances remain shaky, it appears that the country's economy is in fact healthier than what the official figures show. 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. Even a small but serious effort to collect more taxes can make a big dent in budget deficits. My hope is that increasing share of the informal economy will become documented with the rising use of technology. Bringing a small slice of it in the tax net will make a significant positive difference for public finances in the coming years.

Related Links:

Haq's Musings

Pakistan's GDP Grossly Underestimated, Shares Highly Undervalued

Investment Analysts Bullish on Pakistan

Precise Estimates of Pakistan's Informal Economy

Comparing Pakistan and Bangladesh in 2012

Pak Consumer Boom  Fuels Underground Economy

Rural Consumption Boom in Pakistan

Pakistan's Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan

Pakistan's Circular Debt and Load-shedding

Hypermart Pakistan


Riaz Haq said…
Here's Daily Times on inflation in Pakistan ad the rest of South Asia region:

ISLAMABAD: Despite experiencing inflationary pressure in the region, Pakistan has managed to contain inflation rate within single digit, which is lower than the regional countries including India and Sri Lanka.

Pakistan’s year on year inflation rate (Consumer Price Index) registered an increase of 7.9 percent in December 2012 as compared to same period of last year.

While in India the CPI was registered at 9.2 percent followed by Sri Lanka 9.2 percent and in Bangladesh the CPI increased by 7.2 percent (October 2012), the official sources said.

The price comparison of essential consumer items prevailing on December 27, 2012 in Pakistan as compared to neighboring countries including India, Bangladesh, Sri Lanka and Afghanistan are indicative as prices of wheat, wheat flour, rice, sugar and red chillies were found lower in Pakistan than other regional countries.

Currently the wheat flour is being sold at the rate of Rs 34.5 in Islamabad while its price in New Delhi
(India), Dhaka (Bangladesh), Colombo (Sri Lanka) and Kabul (Afghanistan) is Rs 37.6, Rs 49.6, Rs 132.5 and Rs 54 per kilogramme (kg) respectively.

The rate of sugar in Islamabad, New Delhi, Dhaka, Colombo and Kabul is Rs 58.8, Rs 71.2, Rs 68.5, Rs 89 and Rs 90 per kg respectively.

Similarly rice is being sold at Rs 114.1, Rs 163, Rs 188.8, Rs 132.5 and Rs 171 per kg in Islamabad, New Delhi, Dhaka, Colombo and Kabul respectively.

The prices of mutton and beef in Islamabad, New Delhi, Dhaka, Colombo and Kabul are Rs 565 and Rs 280, Rs 543 and Rs 273, Rs 531 and Rs 318, Rs 883 and Rs 412 and Rs 679 and Rs 540 respectively.

The sources added the petrol price in Pakistan was lower than in India and Bangladesh as the petrol was being sold at Rs 102.65, Rs 120.07 and Rs 108.85 respectively in Pakistan India and Bangladesh.

The price of diesel in Pakistan however is higher as compared to the regional countries. The diesel price is Rs 109.77, Rs 84.2 and Rs 74.61 in Pakistan, India and Bangladesh respectively.

According to the sources the government has constituted National Price Monitoring Committee under the chairmanship of secretary finance. The Committee is mandated to review the price and supply position of essential items in consultation with provincial governments and concerned federal ministries and divisions.\01\06\story_6-1-2013_pg5_9
Riaz Haq said…
Here's Daily Times on Karachi stock market:

KARACHI: Despite of economic woes, heightened security environment and power crisis, Pakistan’s total return Karachi Stock Exchange (KSE-100) Index has been one of the best performing markets in the world with gain of 49 percent in local currency and 38 percent in US dollar in 2012.

Pakistan ranked amongst top 10 in the world due to 450bps decline in policy rate in last 18-months that besides boosting earnings, encouraged funds flows from government securities to equities. Resolution of Capital Gain Tax issues, improved relationship with US, better foreign flows and serenity on the political canvas were amongst other factors that created positive sentiments in the market

The Karachi stock market registered return of 49 percent compares favourably with last 10-years and 20-years average annual return of 28 percent and 22 percent respectively. Overall average daily volumes improved to 173 million shares during 2012 as compared to 79 million shares in 2011, while in value terms they stood at Rs 4.7 billion or $50 million as against Rs 3.5 billion or $40 million in 2011. However it compares unfavourably with last 10-year average daily volume of 220 million shares (Rs 16 billion or $237 million).

The reforms in Capital Gain Tax was given impetus to the market has come from substantial reduction in the interest rate in last 18-months. Since July 2011 policy markers had reduce the discount rate by 450bps to 6.5-years low to 9.5 percent amid considerable reduction in the inflation numbers (November CPI 6.9% is record low) that allowed them to focus on revival of growth. This not only improved the operating dynamics of leverage companies namely cement and textile, but has also accommodated funds flows from debt securities to stock market.

The foreign investors holds $3.1 billion worth of Pakistan shares which is 30 percent of free-float (7 percent of market capitalisation), remained net buyers in 2012, despite perception of heightened security concerns and structural issues. The foreigners in 2012 bought shares worth $933 million and sold $808 million resulting in net buying of $125 million ($194 million excluding Hubco). Though the number is a considerable improved from last year net sell of $127 million...\01\06\story_6-1-2013_pg5_6
Riaz Haq said…
Here's Daily Times on decline in Pak defense budget and debt service since 1990s:

* Defence expenditures fall from 5.6% of GDP in 1994-95 to 2.5% in 2011-12, while debt servicing expenditures slump from 7.6% of GDP in 1997-98 to 4.3% in 2011-12

Staff Report

ISLAMABAD: Defence and debt servicing expenditures have been on the decline over the last nearly two decades in relation to gross domestic product (GDP), as spending on defence decreased from 5.6 percent in 1994-95 to 2.5 percent in 2011-12 while debt servicing which was 7.6 percent in 1997-98, is at a moderate level of 4.3 percent in 2011-12.

According to a report of Ministry of Finance’s Debt Coordination Office director general, the falling tax-to-GDP ratio has been a consistent problem over the decades. Even in the years of fiscal deficit contraction, the tax-to-GDP continued to fall. The decline is attributed to rising GDP in recent years but tax revenue failed to keep pace with the GDP growth. Hence, the improved fiscal discipline period has also been resultant of a controlled expenditure rather than expansion of revenues.

The policy decision to allocate 3.0 percent of the GDP to defence expenditures has not been done for the last couple of years due to financial constraints.

Fiscal balance has been under pressure for the last few years on back of structural deficiencies in tax system coupled with increasing expenditure on the back of high cost of subsidies. Broadening the tax net, enhancing the tax compliance, improving the service delivery, minimising the untargeted subsidies and result-based management of development expenditure are essential to attain fiscal discipline.

In May 1998, Pakistan went public with its nuclear capabilities, it is estimated that around Rs 100 billion were invested in Defence Saving Certificates (DSCs) by the public during 1997-98 and 1998-99. DCSs are 10 years instrument and both profit and principal are paid at the time of maturity. As the government follows cash accounting and no accrual is passed during the period, it results in understatement of fiscal deficits in initial years and overstatement of fiscal deficit in which the maturity of these certificates falls. The government paid around Rs 425 billion as interest on these DCSs during 2008-09 and 2009-10.

The total amount of food and energy subsidies paid between 2001-02 to 2007-08 stood at Rs 742 billion, whereas, Rs 1,407 billion was paid during last four years, which includes Rs 511 billion related to past year’s unpaid subsidies against power sector and commodity operations. The government didn’t increase the electricity tariff substantively during 2003 to 2008 that created circular debt in power sector companies. In 2010-11 and 2011-12, the government cleared the unpaid subsidy claims of Pakistan Electric Power Company related to past years amounting to Rs 433 billion (Rs 120 billion in 2010-11 and Rs 313 billion in 2011-12). Furthermore, past years’ subsidy claims of Rs 78 billion related to commodity operations were also paid during 2011-12. Higher international oil and commodity prices forced the government to intervene by providing higher energy and food subsidies to protect the vulnerable segments of the society and contain inflation.

Domestic loans: Pakistan’s domestic debt comprises permanent debt (medium and long-term), floating debt (short-term) and unfunded debt [made up of the various instruments available under the National Savings Scheme (NSS)] having shares of 22 percent, 54 percent and 24 percent, respectively in total domestic debt as on June 30, 2012.

Permanent debt mainly consists of medium to long-term instruments including Pakistan Investment Bonds (PIBs), government Ijara Sukuk bond, prize bond etc.
Riaz Haq said…
Here's Bloomberg on Pak stock market outlook:

Muddassar Malik, chief executive officer of BMA Funds, who oversees the equivalent of $120 million in stocks and bonds, comments on his outlook for Pakistan’s stock market after the benchmark Karachi Stock Exchange 100 index sank 3.2 percent to 16,107.89 yesterday, its steepest drop since Aug. 9, 2011.

Stocks fell after the country’s Supreme Court ordered the arrest of Prime Minister Raja Pervez Ashraf in a corruption case involving rental power projects. Prior to that announcement, Tahir-ul-Qadri, a popular cleric, rallied thousands of protesters in the capital Islamabad, calling for the government to be dismissed. Malik spoke in a phone interview from London late yesterday.

On the impact of the court order:

“The events are very significant, disruptive events for Pakistan’s political landscape. But I feel this is not the end, perhaps it’s the beginning. I believe the likelihood is that these events will be driving the position into positive territory.

“The structural and the fundamental story in Pakistan remains unimpaired; high population, a country with significant demand driven by domestic consumers and located in one of the fastest growing regions in the world. What is missing is a set of economic and political policies which create the right environment for investment and I think the disruption can bring about that change in confidence. There is a certain degree of optimism that we have to look forward to.”

On investors’ fears:

“There are concerns about the future direction post- elections. Investors are looking for clarity. In the last four or five years, Pakistan has been through a very difficult and challenging period in terms of politics and economics as well as the war on terror. So investors see a landscape that is starving of investment, and I think people are hungry to get back into the game.”

On market sentiment:

“The unexpected announcement was obviously a jolt for the market and it caught the market unaware and wrong-footed in the context of the political demonstrations taking place in Islamabad. Market sentiment is 100 percent driven by politics at the moment and I think it’s unrealistic to assume that sentiment will change very quickly for the next week to fortnight.”

On BMA Fund’s index target for 2013:

“Our index target for the calendar year 2013 is 20,000, and we don’t feel that the current set of events will derail that target for the time being. With the market showing the declines it has done and also the declines it could do in the coming days, it will certainly set up some of the good high- quality stocks to give healthy returns in excess to 20 percent to 30 percent.”
Riaz Haq said…
Here's Bloomberg on KSE-100 rebounding on earnings expectations:

Pakistan’s (KSE100) stocks rose to a three- week high, led by Fauji Fertilizer Co., the biggest maker of the farming material, which reports earnings tomorrow.

The Karachi Stock Exchange 100 Index gained 1.5 percent to 16,894.09, the highest close since Dec. 31. Fauji Fertilizer rose 1.5 percent to 120.36 rupees, the biggest contributor to the benchmark index’s advance. Lucky Cement Ltd. (LUCK), due to report profit on Jan. 28, rose 1.6 percent to 153.46 rupees.

“Investors are confident that the earning season will be pretty good this quarter,” Khurram Schehzad, head of research at Arif Habib Ltd., said by phone.

Arif Habib, a Karachi-based brokerage, forecasts overall earnings to rise as much as 15 percent in the three months to Dec. 31 from a year earlier, he said. The KSE 100 trades for 6.9 times estimates for this year’s profit, the lowest among 15 Asia-Pacific benchmark indexes tracked by Bloomberg.

The KSE 100 tumbled 3.2 percent on Jan. 15, the biggest drop since August 2011, after the nation’s Supreme Court ordered the arrest of Prime Minister Raja Pervez Ashraf. The gauge has climbed 4.9 percent since then, after the chairman of the anti- corruption agency told the chief justice Jan. 17 there isn’t enough evidence to arrest the prime minister and others accused of graft in awarding power contracts.
Riaz Haq said…
Karachi Bourse closes over 17,000 points first time ever, reports Dawn:

KARACHI: Stocks roared ahead at the Karachi Stock Exchange with the KSE-100 index quite easily breaking the psychological barrier of 17,000 on Thursday.

The benchmark settled at 17,056.36 points, representing gain of 147.69 points.

The market capitalisation-based KSE-30 index jumped 125.28 points to 13,931.66 points.

Figures released by the National Clearing Company of Pakistan showed that mutual funds were major buyers with net purchases worth $6.03 million. Foreign investors sold equity in the net sum of $0.76 million.

Turnover galloped to 271 million shares on Thursday, against 218 million shares traded the earlier day with the trading value increasing to Rs6.9 billion, from Rs5.5 billion.

Market capitalisation was up to Rs4.263 trillion, from Rs4.223 trillion.

In all, 353 stocks came up for trading with 205 gainers; 123 losers and 25 ending at the previous values.

Equity dealer, Samar Iqbal at Topline Securities observed that the Karachi bourse managed to close above psychological mark of 17,000.

Institutional buying and good corporate results helped equity prices to improve by approximately one per cent.

More than expected earnings announcement by Engro Foods helped the market sentiment.

Mid cap cement stocks performed well as investors expecting healthy profits for the quarter ending December.

Ahsan Mehanti at Arif Habib Corp stated that the stocks had closed at record high amid rising trades in the earnings announcements session at KSE after SBP slashed yield on T-bills.

Other reasons listed for the bullish trend at the market were investor hopes for policy rate cut in monetary announcement due next month, rising local cement prices, easing political uncertainty and renewed foreign interest in Pakistani equities.

Hasnain Asghar Ali at Escorts Capital commented that fresh inflows in E&P stocks took along the benchmark for yet another historic session.

The heavy weight E&P stocks led the bullish run and were well supported by the cement and textiles. Also better than expected earnings of EFood invited renewed buying interest as the company reported record growth in earnings.

The news flows regarding Secondary Public Offering of PPL, settlement of property dispute with Etisalaat and issuance of 3G license stayed the driving factor for the local equities.

Judicial hearings, law and order concerns and volatility on political front continued to suggest caution.

On Thursday’s trading, Unilever Food posted the highest gain for the day, in the sum of Rs105 to Rs3905 and was followed by Bata (Pak) which rose by Rs41.05 to Rs1355.

On the other side, UniLever Pak posted the heaviest loss of Rs35.16 to Rs9914.83 and Sanofi-Aventis Pak declined by Rs9 to Rs316.

The 10-top active list was again dominated by the sideboard items. Fauji Cement rose by 32 paisa to Rs7.80 on a huge volume of 60m shares.

It was followed by Maple Leaf Cement, which hit the ‘upper circuit’ with a gain of Re1 to end at Rs17.86 on 23m shares.

Byco Petroleum added 45 paisa to close at Rs14.37 on 20m shares; Jah.Sidd.Co was up by19 paisa to s16.53 on 14m shares; Fatima Fertilizer Company edged higher by 8 paisa to Rs25.88 on13m shares; PTCL was up by 46 paisa to Rs17.82 on12m shares; Lafarge Pakistan was firm by 16 paisa to Rs5.46 on 8m shares; Engro Foods, which declared financial figures on Thursday, was greeted warmly by investors with the price of stock jumping by Rs3.83 to Rs100.82.

TRG was the only scrip among the volume leaders which shed 7 paisa to s7.01 on 6m shares and KESC added 19 paisa to its overnight value and closed at Rs5.84 on 6m shares.
Riaz Haq said…
Here's an ET piece by economist Shahid Javed Burki:

On my way from Pakistan to Washington, I had a chance meeting with a Pakistani economist of considerable repute. We met at Karachi airport’s departure lounge. I have known him for years and have highly valued his work on the Pakistani economy. He surprised me by suggesting that the country was in a much better shape than suggested by some of my writings and those of several others who thought like me. He was of the view that the situation did not warrant the kind of pessimism reflected in our assessments. “Macro numbers may look bad but the real economy is doing reasonably well — in fact very well”, he said. ...
He told me of a recent visit he and some other economists had taken to Faisalabad — arguably the hub of Punjab’s industrial economy — and came across extraordinary enthusiasm about the future of the country and its economy. “The industrialists and traders we met at the city’s Chamber of Commerce were looking forward to the opening of the economy with India. There was nothing but good in that for them and the country”. But it was not only the entrepreneurs operating in large urban centres of the country that look upon Pakistan’s economic future with hope. “The countryside was booming with consumer durables being sold at rates never seen before”, said my economist friend. “I have traveled up and down the country in recent months and seen with my own eyes what numbers don’t tell. The recent commodity boom in the international market place has done wonders for the Pakistani producers in the countryside and also for rural consumers. There is palpable prosperity in the country’s towns and villages”.
For the last five years, Pakistan has had a representative form of government but the representatives people have sent to the various legislative assembles have served mostly vested interests. Would that change? The tens of thousands of people who followed the preacher-politician Tahirul Qadri to Islamabad did so in the hope of widening the system by including those who are prepared to work for others.
Riaz Haq said…
KSE-100 is hitting new highs even as Sensex is at two-month lows. Here are a couple of reports:


18,000 points, boosted by buying from foreign fund managers in the last few days.

The Karachi Stock Exchange’s (KSE) benchmark100-share index ended 0.86 per cent, or 153.25 points, higher at 18,074.27.

Around 370 million shares were traded, mostly in telecoms companies. Both Pakistan Telecommunication Corporation and Engro Corporation closed at their upper limit.

Their stocks were boosted by news that the courts had approved a rise in international call rates and that the Engro would receive a steady gas supply. Pakistan suffers from chronic gas and electricity shortages.

Some correction was witnessed in oil stocks due to falling international oil prices, said equity dealer Samar Iqbal at Topline Securities.

World Call Telecom rose 2.7 percent to 3.80 rupees and Pakistan Telecommunication Corporation rose 4.99 percent to 23.97 rupees.

In the currency market, the rupee ended at 98.06/98.12 against the dollar, stronger than Thursday’s close of 98.13/98.18.

Overnight rates in the money market rose to 9 per cent from Thursday close of 8.50 percent.

Daily Times:

Sensex marks lowest close in two months; budget eyed

MUMBAI: The BSE Sensex fell for a second session on Friday to its lowest close in two months, led by declines in HDFC after Goldman Sachs downgraded the stock to “sell”, while ITC fell on fears of a hike in excise duty for tobacco in the upcoming budget.

Shares are expected to be range-bound ahead of the 2013-14 budget, to be unveiled on February 28, and investors will watch whether the finance minister will manage to impose fiscal discipline even as the government tries to revive growth.

India has targeted a fiscal deficit of 4.8 percent of gross domestic product for the year starting in April, but budget details will also be key given an austerity push could add to inflationary pressures, hampering chances for rapid interest rate cuts.

Global risk factors will also be key given domestic shares on Thursday posted their biggest fall since July on worries about whether the US Federal Reserve will continue its bond buying programme.

“One should closely watch how the finance misister balances populist and pragmatic expectations, especially that on fiscal consolidation,” said Vijay Kedia, director at private wealth management firm Kedia Securities.

Announcements have to turn into action otherwise global risk aversion might lead to redemptions even at FII desks, Kedia added.

The benchmark BSE Sensex fell 0.04 percent, or 8.35 points, to end at 19,317.01, after falling 0.77 percent for the week, marking a fourth week of falls.

The broader Nifty fell 0.03 percent, or 1.95 points, to end at 5,850.30, also ending 0.63 percent lower for the week.

Housing Development Finance Corp Ltd (HDFC.NS) fell 1.9 percent, its biggest single day fall since January 11, after Goldman Sachs cut its rating on to “sell” from “neutral”, on expectations that Asia’s third-largest economy would recover at a “modest” pace and the prospect of rising competition.

ITC Ltd (ITC.NS) fell 1.6 percent, marking a third day of losses, on continued fears of a hike in excise duty in the upcoming budget, as the government aims to increase its tax collections to offset some of its revenue shortfall.

Jet Airways (JET.NS) fell 5.7 percent on continued concerns about whether the carrier will clinch a stake sale to Abu Dhabi-based carrier Etihad Airways. Shares have fallen 14.5 percent for the week - their biggest weekly loss since August 28, 2012.\02\23\story_23-2-2013_pg5_19
Riaz Haq said…
Here's Gulf News on various sectors of the economy in Pakistan:

Naveed Vakil, director, research and business development, AKD Securities:

Oil and Gas Development Company Limited (OGDCL): Dollar-based returns and a firm oil price outlook should keep returns high, especially as key development projects come online and the monetisation of recent finds is fast-tracked.

Pakistan Oil Fields (POL): [Its performance is closely linked] to international oil prices that are likely to remain firm in the near term as demand growth recovers, especially from China. POL also offers exposure to Pakistan’s Kohat Basin which is where there has recently been a string of discoveries have been high impact.

Pakistan Telecommunication Company Limited (PTCL): PTCL should post strong earnings growth this year, due to higher margins following the implementation of higher international incoming call rates. Infrastructure is being installed to curtail grey incoming international traffic, which should support legitimate volume as well.

Lucky Cement: Pakistan’s largest cement company should continue benefitting from a rise in domestic consumption led by development spending ahead of the elections. It should benefit from high margins as domestic cement prices remain firm while coal costs remain low.

Furqan Punjani, deputy head of equity research at BMA Capital Management Limited:

Oil and gas

Robust oil prices coupled with [increasing production volumes should] keep the oil and gas exploration and production sector in the limelight in next few years. Revenue streams linked to the dollar and local currency depreciation would also help augment bottom-lines in the sector. We prefer Pakistan Oilfields and Pakistan Petroleum because of their better dividend yields.


Based on better exports prospects and higher profit margins (on low cost cotton) as well as a promotion in the gas allocation list by the government, the textile sector has made it onto our list of top investment ideas for 2013. Nishat Mills is the biggest integrated textile unit in Pakistan and will continue to benefit from its well-diversified core operations and the good potential of its portfolio holdings.


We believe the fertilizer sector presents an ideal mix of defensive and high-growth plays for 2013. Our top pick in the sector is ENGRO.


Cement prices are currently at an all-time high of Rs440(Dh16.27) a bag. We like companies that can magnify top line growth into the bottom-line, thanks to the deleveraging of their balance sheet. This makes DGKC.PA our top pick in the sector.


Pakistan is an energy deficit country and the entire production of independent power producers (IPPs) is consumed on any given day. Moreover, with higher and regular subsidies from the government translating into better cash inflows, the sector has once again come into limelight. Furthermore, as revenues and profits are linked to the dollar, the depreciating Pakistani rupee will also benefit this sector. We prefer Hub Power Company, the largest private sector power producer of Pakistan, because of its higher dividend yields and stable bottom-line.

Commercial banks

The Central bank of Pakistan has reduced the base [interest] rate by 450 basis points in the last 24 months. This has reduced the net interest margins of the entire banking sector, barring a few large banks that have the ability to reduce the rates provided to their depositors and keep attracting fresh deposits at lower rates. United Bank Limited is one of them. We prefer UBL [because] of their ability to grow their deposits by double digits at lower cost, coupled with their greater exposure to high yielding long term government bonds. Furthermore their quarterly payout will continue to lure value investors to the bank. ....
Riaz Haq said…
Here's an ET report on Elixir Securities CEO's projections for Pak equities:

KARACHI: The sales pitch employed by Elixir Securities CEO Junaid Iqbal to global fund managers at the Pakistan Capital Markets Day in New York last month was simple: even if the incumbent government returns to power after the upcoming elections, the Karachi Stock Exchange (KSE)-100 Index is still likely to post returns of over 21% in 2013.

In case a more pro-business government – supposedly led by the PML-N – comes into power, the stock market will rerate from the current multiple of 6.9 to 7.9, if the projections of the Elixir Securities research team are to be believed. That would push the index to 23,200 points by the end of 2013, which translates into an annual return of 38%.

In the best-case scenario, wherein the new political leadership tries to fix the taxation system in its first months in power, Elixir Securities estimates the KSE-100 Index will likely touch 26,000 points by December 2013, which means a staggering 54.8% annual return.

“The market is operating at an average multiple. In the absence of any leverage, there are no associated risks. It is being driven purely by earnings growth right now,” Iqbal told The Express Tribune in an interview.

Initially planned as a one-day event (hence named the Pakistan Capital Markets Day), Elixir Securities’ two-day road show in the global financial centre was attended by 35 fund managers, partners and principals from 25 major international asset management companies and hedge funds. Elixir Securities also took along representatives from Engro Corporation, Engro Foods, Lucky Cement and United Bank Limited. Iqbal was accompanied by the heads of his research and sales departments.

“All of them wondered how Pakistan’s capital markets could perform so well amidst bombings and violence,” he said, while noting that the KSE remained the third best-performing stock exchange of the world in 2012 by posting 37% returns in dollar terms, despite political instability and frequent terrorist attacks.

“I told them, honestly, that we cannot defend Pakistan on its human rights record: but the fact remains that the annualised growth in profits of the corporate sector for the last four years has been 17%,” he said.

“They understand that a political metamorphosis is taking place in Pakistan. At the same time, they are supremely impressed by the quality of management in our corporate sector,” he added.

Without naming the funds or giving their exact number, Iqbal said many of the companies he interacted with in New York have already consented to visit Pakistan in the near future. He said that it is not possible to state the exact amount of foreign institutional portfolio investment that is likely to come in as a result of his road show, but added that he was confident that investment will soon be coming into Pakistan’s capital markets.

He cited two reasons: firstly, all of the participants, which included some of the largest global funds, had sent their senior team members – something that shows how seriously they viewed Pakistan’s financial sector. Secondly, he noted, they were all ‘knowledgeable investors’ who had already developed deep understanding of issues ranging from the suspension of gas to Engro’s $1.1 billion fertiliser plant, to turf wars in Karachi involving the People’s Aman Committee.

“Pakistan is already on their radar. Our market will skyrocket once the law and order situation improves,” he said.
Riaz Haq said…
Forget the BRICs; Zambia, Estonia and Pakistan are the place for alpha investors, argues former Golaman Dachs executive Dambisa Moyo in a piece on :

The search for superior, uncorrelated risk-adjusted returns continues, and savvy investors such as endowments and family foundations are turning their attention to the frontier markets. Such markets exclude the BRICs, many of which posted sizable equity returns of over 30% last year, including Nigeria, Estonia, Pakistan, and Kenya. The MSCI Africa sub index posted one-year returns of over 60%. By comparison, the BRICs (Brazil, Russia, India and China) grew slower and sluggish—for example, around 4% on the Shanghai index and -2% on Brazil’s Bovespa.

A set of well-known factors bind these seemingly random countries. Solid debt and deficit dynamics; attractive labor trends, favorable demographics and upward mobility; and important productivity gains all make for a compelling economic growth story. However, there are two areas where perceptions of frontier economies are really changing: risk and liquidity.

In regards to risk, investors are beginning to better understand the significant benefits of delineating between risk, measurable and possible to calculate, and uncertainty, which is not. Like anywhere else, investors who can tap into on-the-ground networks and relationships have an advantage with risk management. But thankfully meaningful, the task of risk assessment has gotten easier with increases in transparency around economic and political information, data flows and widely available regulations over jurisdictions. The transition to western-styled democracy and fully transparent and liquid capital markets will be bumpy, but the uncertainty arising from these growing pains should be viewed in the context of an upwardly sloping trend line of progress which will almost certainly occur over a relatively short time line.

Correlations between frontier and developed stock market returns are around 0.75, compared to roughly 0.90 between developed and emerging economies such as the BRICs. Country risk premiums are close to those of the broader emerging markets. With proper risk management tools, this implies that investors can garner significant diversification benefits. The lower correlation between frontier and developed markets points to risk factors that are orthogonal to the global risk-on, risk-off theme that has captivated markets over the past five years. Frontier markets provide opportunities to step away from the global macroeconomic themes and focus on the micro stories on the ground, thus providing a better environment to identify unique investment opportunities. Smart investors are looking for great opportunities that are driven by company-specific issues from which they can analyze and profit.

In terms of liquidity, both equity and debt markets – international and local – have grown considerably over the last five years. Today, with a market cap of more than $1 trillion, the universe of stock markets boasts more than 8,000 listings across broad sectors with notable risk/reward profiles in financials such as banking and insurance, consumer goods, and telecommunications companies. A number of commentators erroneously believe investing in frontier markets is simply expressing a commodity trade. To assume this would be miss out on some of the more significant opportunities in these burgeoning markets such as in the logistics and telecommunication sectors. Moreover, to put a finer point on this, today Africa has almost 20 stock exchanges, with just over a thousand listed equities; more than 85% of these stocks are non-commodity related businesses....
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