Pakistan's KSE100 is the World's Top Performing Stock Index

Pakistan's KSE100 (Karachi Stock Exchange 100) index closed the year 2016 as the world's best performing stock market index over one-year and five-year periods, according to data available from Bloomberg. It has not only outperformed India's Sensex index but also the Morgan Stanley Emerging Markets index.

Source: Bloomberg

Pakistan's key index KSE-100 has rocketed up nearly 46% in 2016, far outpacing India's Sensex's 2.57% rise and MSCI emerging market's 8.42% increase. Similarly, over 5 year period, KSE-100 has soared 321% vs India's Sensex rise of 72% and Morgan Stanley emerging market index decline of 7.72%.

Source: Bloomberg

Pakistani stock market gains are driven by multiple factors. Dramatically improved security has brought investors and accelerated the nation's GDP growth. Adding to that is the optimism accompanying Morgan Stanley's decision to bring Pakistan back into its emerging market index that has spurred more buying by foreign index fund managers.

Source: South Asia Terrorism Portal
Other major indicators such as rising cement and energy consumption as well as growing sales of motorcycle and automobiles. A big driver of these improvements is the Chinese commitment of more than $50 billion to finance China Pakistan Economic Corridor (CPEC).

China-Pakistan Economic Corridor (CPEC) is expected to add over 2 million direct and indirect jobs to Pakistan's economy and boost the country's GDP growth rate to 7.5%.  If all goes well and on schedule, of the 21 agreements on energy– including gas, coal and solar energy– 14 will be able to provide up to 10,400 megawatts (MW) of energy by March 2018. According to China Daily, these projects would provide up to 16,400 MW of energy altogether. In addition, there will be roads, rail tracks and oil and gas pipelines stretching thousands kilometers to connect Pakistan's Arabian sea ports to landlocked Western China.

After years of underinvestment and slow growth, Pakistan is finally seeing a lot of investment and development activity.  Pakistan's economic recovery is in full swing with double digit growth in multiple industries, including auto, pharma, chemicals, cement, fertilizers, minerals, etc.  It is expected to pick up steam over the next several years with new investments on the back of China-Pakistan Economic Corridor related projects. The challenges to sustain this growth ranging are many, among the biggest are continuous improvement in security, maintaining political stability and timely execution of projects.

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Riaz Haq said…
Challenges for Pakistan economy:

The exports continued to shrink during the year, registering a decline of 8.8 per cent as compared to 3.9 per cent fall in fiscal 2015. Imports also contracted by 2.3 per cent primarily following the lower international oil and commodity prices. This resulted in widening trade deficit as a percentage of GDP from 6.3 per cent as compared to fiscal 2015 to 6.5 per cent in 2016.

Additionally, the higher repatriation of profits led to an increase in primary income deficit, which resulted in an overall current account deficit of $3.3 billion – about $0.6 billion higher than fiscal 2015.

The experts attributed Pakistan’s exports declined as weak global demand exacerbated the effects long-term decline in export competitiveness. Food and textiles are key contributors to Pakistan’s exports and continue to suffer from a decline in international prices and demand. Giving an example, the experts remarked that although Pakistan exported more rice in fiscal 2016 than in FY15, the value of rice exports fell due to a decline in international prices. The textiles sector, which accounted for 60 per cent of total

The exports, during fiscal 2016, saw a contraction of 5.6 per cent compared to fiscal 2015. “This decline was broad-based and affected both high and low-value textile exports”, the experts pointed out.

The only exceptions were knitwear and cotton carded, both of which grew due to higher global prices in these sub-categories. Although ‘Brexit’ has not yet affected exports, the EU accounts for 23.4 per cent of Pakistan’s exports and the UK 7.4 per cent, suggesting that potential future impacts could be significant.

Continuation of a long-term decline in Pakistan’s share of global trade witnessed in outgoing year, which has been driven by poor trade facilitation, infrastructure gaps, inefficient logistics and a poor investment climate. Pakistan has also lagged behind its competitors in trade openness, reducing its prospects of regaining momentum in export growth.

Accelerating progress in human development, including nutrition, remains a key challenge for sustained economic gains in Pakistan where public spending on education and health was one of the lowest in South Asia and allocations to nutrition were modest. Historically, nutrition — as well as early childhood education and development — have received little attention in Pakistan. The attention nutrition approach has been lacking cohesive planning and mainly funded by international donors and implemented by NGOs.

The year 2016 ended with the positive note for the government as it continued in making progress on fiscal consolidation, reducing the consolidated fiscal deficit from 5.3 per cent of GDP as compare to fiscal 2015 to 4.6 per cent in fiscal 2016. Revenue growth was underpinning the falling deficit, driven in outgoing year by a 20 per cent increase in the Federal Board of Revenue’s (FBR) collection. Some of this collection may, however, affect the progress of other reform efforts; the experts said adding that was in contrast with efforts to reduce Pakistan’s trade tariffs,

Increase in customs duties collection of 32.7 per cent has also been registered in 2016 as a result of FBR’s attempts to meet revenue targets. Similarly, the recently-introduced withholding tax on financial deposits may have driven customers to circumvent formal banking channels, as the currency deposit ratio has increased from 0.29 to 0.35 in just one year. A series of new tax measures in the fiscal 2017 budget will broaden the tax base and are expected to contribute to another significant increase in FBR revenues.

On the expenditure side, the development budget has grown faster than the recurrent budget. In the fiscal 2017 budget, an expected reduction in state-owned enterprise subsidies and interest payments has created space for an increase in infrastructure spending, including on CPEC projects.

Riaz Haq said…
Fired up by improving economy,stocks seen skyrocketing in 2017

Pakistani capital market, which struck it super rich in the outgoing year, is in for a stellar run in the year 2017 too, fueled by a turnaround in companies’ earnings growth, stabilizing oil prices, a steadily improving economy, and a firm job market.

“Pakistan Stock Exchange’s (PSX) KSE-100 Index recorded an impressive return of 45.7 percent, 45.6 percent in USD terms in 2016, compared to 2.1 percent and -2.0 percent in USD terms in 2015,” Khurram Schehzad at JS Global Capital said.

The benchmark index ended year 2016 at 47,806.97 points as compared to the closing of 32,816.31 points at the end of 2015, while average volumes swelled by 14 percent to reach 281 million shares a day in 2016.

“Strong performance of Pakistan equities in 2016 was mainly led by strong local cash liquidity thanks to falling interest rate and rising investor confidence. Economic recovery positively affected local demand for various sectors, rebound in oil prices, better security situation and exuberance on Pakistan’s reclassification in MSCI EM Index also helped,” Fahad Qasim at Topline Securities said analyzing the performance of PSX.

“Automobiles and cement remained top performing sectors in 2016 posting market cap gains of 73 percent and 66 percent, respectively. Index heavy weight oil & gas exploration sector (E&Ps) was up 52 percent whereas banks were up 33 percent. Fertilizer sector was down 5.0 percent due to weak fertilizer demand and high inventory levels.” With more liquidity expected to hit the market in 2017, Pakistani equities are expected to continue re-rating.

According to Mohammad Sohail, CEO Topline Securities, Pakistan’s market is expected to continue stay the course in 2017 on the back of tangible gains from China-Pakistan Economic Corridor (CPEC) projects and rising domestic demand leading to higher economic growth prospects.

“This coupled with liquidity (with local investors) are likely to set the stage for further gains in 2017,” said he. The market capitalization, presently hovering around $90 billion, is expected to cross $100 billion mark in the upcoming year.

Analysts expect benchmark index to rise to 56,000 points by December 2017 generating 20-25 percent returns.

On the other hand, the companies’ profit is expected to hike by an average 20 percent in 2017, compared to an increase of 1.0 percent in 2016, due to a rebound in prices, higher production and sales of oil; bottoming out of interest rates, fertilizer, autos and increased investment in energy sector.

Muzammil Aslam of Invest & Finance Securities (IFSL), says Pakistan Stocks Exchange (PSX) is set to outweigh peers, as well as other asset classes. “In short, reclassification to the Emerging Market index is the X-factor for PSX, since the market still trades at a swift discount of 11 percent to the MSCI FM Index and 23 percent to MSCI EM Index, hefty foreign inflows are on cards; which in the environment of persistent foreign selling would be an additional support for the bourse,” said he.

Aslam added IFSL expects the discount to narrow down owing to uptick in economic numbers, improved law and order situation together with better operating environment, and sector-specific positives.

Riaz Haq said…
South Asia Terrorism Portal (SATP) data on terrorism in Sindh:

Total Terror Deaths in Sindh:

254 in 2016, down from 607 in 2015, 1141 in 2014, 1625 in 2013

Bomb Blasts in Sindh:

12 in 2016, down from 19 in 2015, 62 in 2014, 97 in 2013

Suicide Bombings:

zero in 2016 down from 26 in 2015, 28 in 2014 and 16 in 2013

Sectarian Deaths in Sindh:

25 in 2016, down from 164 in 2015, 86 in 2014 and 122 in 2013.
Riaz Haq said…
Just three years ago, according to the Numbeo international crime index, Karachi was the sixth most dangerous city in the world. Today it stands at number 31 — and falling.
Riaz Haq said…
Nestle #Pakistan' Swiss chief says country's #economy poised for rapid accelerating growthé-MD-sees-Pakistan-in-hot-zone-of-high-economic-activity …

Anticipating bright prospects for industry, local head of the global food giant has said that Pakistan seems poised to enter high economic activity ‘hot zone’, potentially moving to post double-digit growth.

“With increasing per capita income, gradual improvement in economic growth, better law and order situation, easing energy crisis, political stability, exponential gains in equity market, massive infrastructural development under China-Pakistan Economic Corridor (CPEC) and other favourable indicators, we are hopeful of entering the hot zone, which tends to open new vistas of robust growth for food and other industries," said Bruno Olierhoek, Managing Director and Chief Executive Officer of Nestlé Pakistan.

Having over Rs 100 billion of turnover, Nestlé Pakistan is one of the leading companies operating in Pakistan and performance of food giant has frequently been referred as a success story at various forums.

Sharing his forward-looking view in an exclusive talk with The News, Olierhoek said,” The local and foreign companies have already started taking interest in expanding their investment in view of the emerging developments.”

“Apart from macroeconomic stability, roads and other infrastructural development, under the CPEC, will greatly improve access to remote areas of Balochistan and other provinces, leading to greater economic activity. The industry is also expecting huge benefits from power projects being constructed as major component of CPEC.”

Olierhoek said the Nestlé Pakistan is optimistic about power shortages coming to an end as well as reduction in the cost of energy, which will eventually cut business cost.

Pledging long term commitment of his company, Olierhoek said, “Nestlé Pakistan attaches great importance to local market that offers limitless resources and possibilities.”

“Having an emerging middle class, a substantial young population and increasingly health conscious people, Pakistan looks eager to offer market penetration after evolving into a hotspot for investment,” he said suggesting the establishment/enforcement of a National Quality Council to ensure uniform standards throughout the country and to further aid investment for food companies.
Riaz Haq said…
After #China investment, #Pakistan's bourse #PSX bets on #derivatives, #ETFs, new fincial products via @ReutersIndia

Pakistan's soaring stock exchange will introduce derivatives trading from the middle of 2017, the bourse's managing director said, announcing the move weeks after a Chinese-led consortium took a strategic stake.

Nadeem Naqvi, managing director of Pakistan Stock Exchange told Reuters the introduction of derivatives, as well as plans for listing of infrastructure bonds, were part of efforts to boost liquidity in the market and lure foreign investors.

The PSX saw its benchmark index soar 60 percent over the past year, making it one of world's top performing indexes.

In December, a Chinese-led consortium, made up of China Financial Futures Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange and two other firms, took a 40 percent stake in the business.

"Cash settled futures, single stock options, we are on target to launch this year, just after mid-year," Naqvi said on Thursday.

On Friday, a delegation from the Chinese-led consortium formally signed documents for the takeover of PSX with Pakistan's Finance Minister Ishaq Dar, who said the Chinese bourses could help develop the latest technology and trading systems.

Naqvi said the market regulator, Securities and Exchange Commission of Pakistan (SECP), was "fine tuning" regulations on derivatives and was also analysing draft regulation on exchange traded funds (ETFs).

Pakistan's economy has rebounded in recent years, with improving security across the country fuelling economic growth.

Sentiment was further buoyed by China's plans to invest $57 billion in a network of roads, railways and energy infrastructure across Pakistan.

Pakistan was the world's fifth highest-returning stock market in 2016, but the growth was driven by local investors, with the bourse eager to attract more foreign inflows.

According to Naqvi, foreign institutional portfolio managers hold about a third of all freely tradable shares, while another third is held by domestic institutions, pensions and institutional companies.

The remainder is held by Pakistani retail investors.

The market capitalisation of the PSX is around $90 billion, although only about a quarter of that is freely tradable.


Pakistan's bourse was boosted last year when the country's stock market was reclassified to be included in the MSCI's emerging market index category.

Naqvi said MSCI's announcement helped boost liquidity.

In December, the average daily value of trades stood at about $200 million, doubling from December 2015, but some way below pre-2008 crisis levels, when daily trades reached $400-$500 million.

Pakistan was dropped from the MSCI Emerging Markets Index when it imposed a floor on the market during the financial crisis in 2008, effectively trapping local and foreign investors for several months.
Riaz Haq said…
#Pakistan #banks show strong growth. #Deposits up 20%, #loans rise 17% in 2016.

Banks advanced Rs5.6 trillion to the private sector in 2016, which is 17 per cent more than 2015
Deposits at Pakistan's commercial banks reached Rs11.2 trillion as of December 30, 2016. At this level, it works out as a 20.4 per cent year-on-year growth in deposits compared to the last three years.

Add to it the good news that banks advanced Rs5.6 trillion to the private sector in 2016, which is 17 per cent more than 2015 when only Rs4.8 trillion was sanctioned.

Banking and equity sector analyst Umair Naseer of Topline Securities said this is significantly higher than the historical average growth of 12 per cent in the past three years. He added that the strong deposit growth bodes well for banks as it remains the key earning driver in a low interest rate environment.

This is a success story for the banking sector as it took place at a time when some sectors of the economy, including the biggest one such as textiles - are still struggling to match their good performance in the past. At the same time, exports, hit by the international crash of oil and commodity prices and lower domestic output, declined from $24 billion to $19 billion in 2016.

The easy money policy of the State Bank of Pakistan (SBP), the central bank, has brought down the interest rate to 5.75 per cent - the lowest in 42 years. The banks have also been slashing the profit rate payable to depositors. This, in turn, was holding up a major growth in deposits.

The government of Pakistan, financial institutions and economists firmly believe that commercial banks should redouble their efforts and undertake a major deposit mobilisation campaign so that they can lend more money to the credit-starved private sector, including key industries such as textiles and the stagnant export sector. The government has to share part of the blame for credit shortage in the private sector as it has been borrowing heavily to fill its budgetary gap.

The current year will need redoubling of the deposit mobilisation efforts for growth as there are already some economists who feel the rate may be reduced to the range of 13 to 15 per cent. This is because, in the recent past, the government deposited larger amounts of money in these banks to earn larger profits. But this practice is almost over.

The SBP recently reported that bank investments rose eight per cent to Rs7.2 trillion last year. This helped the economy to look up after years of slowdown. It also confirms the fact that the economy is looking up under pro-business Prime Minister Nawaz Sharif, whose party will face new parliamentary elections in the first half of 2018. Other key elements which can help him win these elections will be the fast-track implementation of the $61 billion Chinese investment in the China Pakistan Economic Corridor (CPEC).

Other positive factors are the recently announced FDI inflow from the UAE, Saudi Arabia and other countries, attracted by CPEC and the improved investment climate in Pakistan, and revival of the overall economy.

The Chinese investment in financial and equity sectors and energy is now very substantial. A consortium of three Chinese and two Pakistani companies have bought 40 per cent shares of the PSX - the Karachi Stock Exchange, for $80 million. Besides attracting more Chinese FDI, it is likely to encourage other foreign countries and companies to invest in Pakistani shares and the financial market.

Riaz Haq said…
#Pakistan stocks hit record high. #PSX's #KSE100 crosses 50,000. Up 61% in 12 months | Bangkok Post: business …

Pakistan's benchmark index briefly touched a record high level of 50,050.19 on Tuesday, before edging down, underpinned by buying in the cement sector.

The Pakistan Stock Exchange's benchmark 100-share index touched the key level soon after the market opened for trading on Tuesday.

"It is a technical market correction; market may hover close to 50,000 level and may cross the fifty thousand mark in current or next session," Fawad Khan, head of research at KASB Securities Private Ltd, told Reuters.

"The index performance shows the local investors' confidence in the market."

A delegation from a Chinese-led consortium, made up of China Financial Futures Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange and two other firms, formally signed documents on Friday to buy a 40 percent stake in the Pakistan Stock Exchange. The deal was made public in December last year.

The benchmark index soared 61% over the last 12 months, making it one of the world's top performing indices.

Riaz Haq said…
Forget #India, Its Neighbors #Pakistan, #Bangladesh & #SriLanka Are the Next Big Thing. #Economy … via @barronsonline

Forget India. Investors looking for the next big thing should look to its South Asia neighbors instead – Pakistan, Bangladesh and Sri Lanka.

With a combined 390 million people, the three countries represent what Morgan Stanley chief global strategist Ruchir Sharma calls “the quiet rise of South Asia” as opposed to India which has been “flattered by spasms of hype for years”. While overshadowed by their larger neighbor, the trio is enjoying fast-paced growth, embracing much needed reforms, and look set to enjoy a demographic dividend over the long term. “A substantially higher economic growth rate than in many other economies globally, coupled with fantastic demographics that will continue supporting growth for many years ahead”, East Capital fund manager Adrian Pop tells Barron’s Asia. The Stockholm-based firm manages nearly EUR3 billion in frontier markets.

Pakistan is the flag bearer of the positive changes taking place in the South Asian nations. Since coming to power five years ago, Prime Minister Nawaz Sharif has got inflation under control, cut the budget deficit and reined in the current account deficit. But more importantly, terrorism finally appears to be on the back-foot given more assertive action by the army. Chinese investment has also poured in: $50 billion will be spent on new roads, transport links and energy projects. “More power capacity is key for Pakistan to move to an even higher economic growth rate,” says Pop. That will benefit stocks in materials and energy. In December, the Pakistan Stock Exchange sold 40% of itself to consortium of Chinese investors.

The Karachi stock index is up by about 50% since the start of last year, propelled by index compiler MSCI’s decision to bump up the country to emerging markets status. That will bring in hundreds of millions of dollars from passive funds into the Pakistani benchmark. The rally in stocks has arguably left the market looking a little pricey as the KSE 100 index trades at over 12 times earnings, its heftiest valuation since late 2009. That’s still about a 15% discount to the MSCI emerging markets index, however, plus Pakistani stocks yield an attractive 4%-plus dividend.
Riaz Haq said…
#London #FTSE composite index includes six #Pakistan companies.Additional $57 million expected to flow into #Karachi

KARACHI: The Pakistan Stock Exchange (PSX) continued to attract international attention, as six of its listings were taken on board by the Financial Times Stock Exchange (FTSE) index.

FTSE is a London-based provider of indexes, which helps international investors track their funds at bourses worldwide.

FTSE, in its semi-annual review, included Habib Bank, Mari Petroleum, Searle Pakistan, Engro Fertilizers, Fauji Cement and Nishat Mills from Pakistan into its Global Equity Index Series Asia Pacific excluding Japan.

“The changes will be effective after the close of business on Friday, March 17, 2017 (i e on Monday, March 20, 2017),” FTSE Russell reported on its official website.

The PSX witnessed a bull ride on Thursday, as its benchmark KSE 100-Index surged 1.44%, or 703.92 points, and closed at 49,696.08 points.

Invest and Finance Securities said in a note, “we do highlight the news item as a major sentiment booster, which should aid the market to continue ascending northward.”

The development is believed to trace additional foreign funds into the PSX.

“Since approximately $67.25 billion funds track FTSE Global Equity Index Series, based on the assigned weightages we estimate a total of $56.8 million to enter Pakistan,” the brokerage firm said.

“This [estimated] flow is in addition to the expected $771 million inflow (passive: $374 million and active: $396 million), which we estimated post-MSCI inclusion,” it added.

Earlier, MSCI – another world leading indices provider – announced in June 2016 to upgrade Pakistan into the MSCI Emerging Markets Index in May 2017.

The FTSE website added the FTSE World Asia-Pacific excluding Japan Index is one of a range of indexes designed to help investors to benchmark their Asia-Pacific investments. The index comprises large- and mid-cap stocks providing coverage of the developed and advanced emerging markets in Asia-Pacific excluding Japan.

“The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalisation,” it said. The FTSE Global Equity Index Series covers around 7,400 securities in 47 different countries-covering every equity and sector relevant to international investors’ needs.

Indexes within the FTSE Global Equity Index Series are designed for the creation of a broad range of financial products, such as index tracking funds, derivatives and exchange traded funds, as well as being performance benchmarks.

Riaz Haq said…
#Pakistan equities bouyant ahead of index reclassification- Nikkei Asian Review. #PSX #Karachi #MSCI #EmergingMarket

Analysts say banking, construction stocks to benefit from inward investment

The Stock Exchange of Pakistan emerged as Asia's best performing equity market and the fifth best in the world in 2016 by providing a total return of 45.7%. The market then peaked at 50,192.4 points on Jan. 26, falling back slightly in February and March, but analysts see more upside ahead of Pakistan's graduation to the MSCI Emerging Markets Index.

The stellar performance of the benchmark KSE 100 Index in the last year has been largely attributed to index compiler MSCI's decision last June to move the country to its EM Index from its Frontier Markets Index. The index stood at 36,979.96 at the time of MSCI's announcement.

By April 4, the index of 100 blue chips was at 48,088.37. With the shift to the EM Index expected to happen in May, the KSE 100 is expected to extend its gains.

Pakistan will be represented in the EM Index by two large capitalization stocks and five mid-caps, with a weighting of 0.16%. In addition, 19 small cap companies will become part of the EM Small Cap Index.

MSCI had earlier listed nine Pakistani companies for possible inclusion in the EM Index, including Hub Power and Pakistan State Oil, but those two are now slated to join the small cap index following a review in November. Shahbaz Ashraf, head of research at Karachi brokerage Arif Habib, said the stocks may have been downgraded because of low trading volumes.

As of November, Pakistan's weighting in the Frontier Markets Index stood at 9.63%, with 16 constituents: Engro, Fatima Fertilizer, Fauji Fertilizer, Habib Bank, Hub Power, Indus Motor, K-Electric, Lucky Cement, MCB Bank, National Bank, Oil and Gas Development, Pakistan Oilfields, Pakistan Petroleum, Pakistan State Oil, Pakistan Telecommunication and United Bank.

Pakistan has been drawing growing interest from foreign investors. According to the government, inward foreign investment between July 2016 and February 2017 totaled $1.284 billion, surpassing the total of $1.281 billion in the fiscal year to June 2016. By sector, the largest portion of investment went into power, followed by construction, then oil and gas. The Pakistan Board of Investment estimates that foreign investment this fiscal year could reach $3 billion to $5 billion.

"Strong liquidity and increased investor confidence has led to increased domestic market penetration," said Mohammad Bin Shahid, portfolio manager at UBL Fund Managers, referring to foreign investment in stocks.

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