Monday, December 31, 2012

Pakistani Shares Beat Asian and BRIC Market 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


Ramzan said...

Riaz can you tell how much the Pak rupee has lost its value in last 10 years compared to our neighbors? It is good to see these number growths but reality?

Riaz Haq said...

Ramzan: "Riaz can you tell how much the Pak rupee has lost its value in last 10 years compared to our neighbors? It is good to see these number growths but reality?"

Rupee decline is a symptom of poor management of the economy by the current govt. The point of my post is that Pakistan's private sector has done well in spite of poor governance in the country.

Pak rupee was about 60 to a US dollar ten years ago and now it is close to 98 rupees to a dollar....about 63% decline over 10 years.

KSE-100 was about 2,000 ten years ago and it closed near 17,000 today....8.5X increase over 10 years based on strong company earnings.

Hamid said...

I thought you said rupee devalue is to increase exports???

Twister said...

Tax collection increases aren't happening until you bring agriculture into the tax net. As long as that sector is given a blanket tax waiver, it will continue to function as a masking agent for other sectors as well as far as tax revenues go.

Hopewins said...

^^RH: "Tax collection increases aren't happening until you bring agriculture into the tax net. As long as that sector is given a blanket tax waiver, it will continue to function as a masking agent for other sectors as well as far as tax revenues go"

This is a flawed analysis.

Even though it is often repeated in fashionable intellectual circle, it is still wrong.

Agriculture is only 20% of GDP and FALLING. Clearly, no one is proposing that all agricultural output be taxed is a lot of the output is from low-income small or mid-size farmers. The proposed agricultural tax only pertains to the large farmers (or landowners). But their contribution to agriculture by $ value is only about 7% and FALLING.

We won't raise much taxes by doing this and any gain will keep falling in the future in proportional terms.

What Pakistan needs is a WIDER tax base that taxes ALL activities at LOW rates, including Services which are 55% of GDP and GROWING.

Taxing agriculture as a "saving grace" would have been an excellent idea in 1980 or before. But it is now an idea whose time has passed. Note that I am not saying that agriculture should not be taxes; all I am saying that it won't make the dramatic difference that most people think it would...

Ameer said...

Great news, but lets not forget that th gains have to be adjusted for loss PKR loss of value of 11% for the year 2012

Riaz Haq said...

Ameer: "Great news, but lets not forget that th gains have to be adjusted for loss PKR loss of value of 11% for the year 2012"

Yes, but it's still 37% gain in US dollar terms for KSE-100 in 2012, enough to beat all Asian and BRIC market indices.

AM - India said...

Riaz, do correct me if I am wrong, but your point in article and comments section, seems limited to "KSE has out-performed the Sensex". In that case, let me give you some more reasons for cheer and also point out that you are making the point about 3 years too late. KSE is outperforming India (nd China) massively for 3 year running, in local currency terms.

Am not sure what that proves other than the fact that India (and China) are currently going through a bear market since the 2008 high, but here's in anticipaton of your new headline - KSE beats Sensex performance for not 1,2 but 3 years running!!!

On a serious note, the last time the Sensex outperformed the rest of the world was in 2003-2008, and it presaged a slowdown in the real economy in India that has lasted about 4 years now (and ongoing). what do you think KSE's outperformance implies in Pakistan's context?

Shivam said...

KSE is a penny stock compared to BSE. Penny stocks often have massive percentage rises and falls because the amount of money involved is so small.

Only you Riaz have tried to compare KSE to BSE. It is like saying that Nasir Jamshed can score twice as many centuries as he has now, but Sachin Tendulkar cannot. That is because Sachin would need to score another 100 centuries to double his tally, but Nasir Jamshed needs to score...I dont know... 2 or 3 more.

It is still foolish to compare Jamshed and Sachin or KSE and BSE.

Riaz Haq said...

Shivam: "KSE is a penny stock compared to BSE. Penny stocks often have massive percentage rises and falls because the amount of money involved is so small."

This comparison shows your ignorance (bigotry?) not only about Pakistani shares index but also penny stocks.

KSE-100 listed companies are large and growing companies with real revenue and profits which have been growing for several years. Penny stocks are speculative.

Over the last ten years, KSE-100 has grow from about 2,000 in 2002 to about 17,000 in 2012.

When adjusted for price swings, the top gain among 72 markets worldwide, according to the BLOOMBERG RISKLESS RETURN RANKING. Pakistan had lower stock volatility than 82 percent of the nations including the U.S. (SPX) Over five years, Pakistan’s risk- adjusted returns ranked eighth.

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.

Hopewins said...

^^Shivam said...
KSE is a penny stock compared to BSE. Penny stocks often have massive percentage rises and falls because the amount of money involved is so small.


This is not correct.

Volatility in KSE is not that different from BSE. The relative "rise and falls" at the KSE are more or less in line with the those at the BSE.

People can plot the relevant volatility-indicators over a 5-year window and see this for themselves:

Kadeer said...

I work for a multi-national pharma firm with subsidiaries in India. India exports in 2013 is projected to be 25 billion in 2013.
Pakistan has similar expertise and knowledge capability so my question to you is what is the state of Pakistani pharmaceutical manufacturing and what can be done to capitalize on that potential.
Right now Pakistan re-imports many drugs manufactured in India via multinational firms either in US, UK or Japan.

Riaz Haq said...

Kadeer: "Pakistan has similar expertise and knowledge capability so my question to you is what is the state of Pakistani pharmaceutical manufacturing and what can be done to capitalize on that potential.
Right now Pakistan re-imports many drugs manufactured in India via multinational firms either in US, UK or Japan."

Though it's much smaller than India's and serves a smaller market, Pakistan does have a vibrant pharma industry.

You can read about it at the industry group PPMA website.

As to the imports from India, it's mostly APIs which are now being banned after a cough syrup death being blamed on an Indian made ingredient.

Anonymous said...

"Though it's much smaller than India's and serves a smaller market, Pakistan does have a vibrant pharma industry. "

India's pharma industry is world class (as reported by WSJ). Be it Ranbaxy, Nicholas Piramal , Reddy Labs. All of them exporting $$ to USA, Europe and Africa. Where is Pak in that??? I guess it is hard to accept that Pakistanis are not in the same league in any industry when it comes to knowledge based economy. Good luck.

Riaz Haq said...

Anon: "India's pharma industry is world class.."

Not quite!

Here's an excerpt of a NY Times story:

For all the potential, though, India’s drug industry has a long way to go to fulfill its promise.

India exported about 384 billion rupees ($8.3 billion) in drugs and services for the pharmaceutical industry in the 2008-9 fiscal year, according to government figures, up 25 percent from the year before.

Recent growth, though, has been shadowed by quality problems. The F.D.A. cited Ranbaxy for manufacturing violations several times in recent years, and in February ordered a review of the company’s global manufacturing operations.

In May, Sanofi-Aventis recalled vaccines made by Shantha Biotechnics that were distributed to the World Health Organization after users complained about white sediment in the vials. In June, after floating matter was found in some plastic IV bags, Pfizer recalled injectible drugs made by Claris Lifesciences and sold in the United States.

Intellectual property is also an open question. Trying to change its outlaw image as a maker of illegal knock-offs, India toughened its patent laws in 2005. But dozens of intellectual property suits are still being fought between Indian and foreign firms in courts around the world. And big pharmaceutical companies still find securing protection of their intellectual property in India difficult.

Meanwhile, outright counterfeit drug making remains rampant in India, executives and analysts here say. A study this year of pharmaceuticals from Indian wholesalers found that 3.6 percent of the “drugs” had no active ingredients whatsoever.

All of which is why some drug executives in the United States say that their Indian peers may be too optimistic about their industry’s prospects.

Kadeer said...

Riazbhai, my question was regarding reverse engineering which the Indian firms do really well and inexpensively - the reason why multinationals like Glaxo are partnering with Ranbaxy.

Yes it is true India did not honor international patents before the WTO agreement but now many generics are imported into the US. FDA has approved highest number of pharmaceutical plants in India outside the US. According to the PhrMa 50% of the generics will be imported and of that 60% comes from India.

Pakistan can do the same starting with the Gulf countries. We have the science and the know how. I don't know how much investment is being made. The growth figures are impressive but at the local level - we need to start thinking global.

I am not saying it will be a smooth ride and there are bottlenecks but, we can learn from the quality issues that Indian firms (in 2012 Indian plants exporting to the US had drug recalls below the industry average) faced.

We should not miss out because this industry is going to be massive in years to come.

Riaz Haq said...

Kadeer: "Pakistan can do the same starting with the Gulf countries. We have the science and the know how. I don't know how much investment is being made. The growth figures are impressive but at the local level - we need to start thinking global."

I have personally not looked into the pharma industry but I do know that Pakistan produces the bulk of what it needs, including some biotech products like Interferon (Ferozesons).

It also exports over $100 million worth of pharma. Here's a piece from Dawn you might find useful:

CENTRAL Asia is an emerging market for Pakistani exports with rising demand for many medicinal and related products. Generic compounds, finished pharmaceutical items as well as medical devices and healthcare products are some of them.

Pakistan’s pharmaceutical industry has in the past decade become evenly split between local and multinational companies in terms of the market share, even though out of the total 400 manufacturing units only 25 or so are multinationals.

The products of domestic pharmaceutical companies are much cheaper than those of multinationals and this price advantage is being leveraged by some of them to export medicines to Afghanistan and other Central Asian countries.

Exports of multinationals are mostly in the area of value-added generic compounds. But local companies export a vast range of medicines used in common ailments. Quite a few of them are also engaged in exports of herbal medicinal formulas, vitality boosting compounds, beauty-enhancing lotions and creams, etc.

Kazakhstan is the largest Central Asian economy and its annual imports of pharma products stood around $800 million in 2010 which are expected to expand to $900 million this year. Out of Pakistan’s total pharma exports of $140 million in the last fiscal year not more than $8 million came from the Central Asian region. That is equal to just one per cent of the total pharma imports of Kazakhstan alone. If we also take into account pharma markets of Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, our pharma export to the Central Asia would look negligible.

In all the Central Asian states in general and Kazakhstan in particular, the pharma market is subdivided into three broad categories: pharmaceuticals, healthcare and medical devices. In addition to imports of pharmaceutical products, Kazakhstan spends hundreds of millions of dollars on imports of healthcare products and medical devices.

But the problem is that exports of our herbal compounds, categorised as healthcare product, to Kazakhstan and to most other parts of the Central Asia, are least documented and the bulk of their proceeds do not come through official channels.

Similarly, a vast range of surgical appliances, instruments, and machinery/equipment used in hospitals that we export to the Central Asia, are categorised there as imports of medical devices but on our side the same are treated as exports of surgical instruments. Some unscrupulous exporters use this for under-invoicing of exports and sometimes for total mis-declaration or even for routing export proceeds through illegal means.

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

Hopewins said...

^^RH: "It also exports over $100 million worth of pharma."

SBP is reporting 113 Million$ as Pharmaceutical exports for FY 11 and 132 Million$ for FY12.

hamid said...

You 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

I read that article in Daily Times but, I have two points.
1. My relatives and friends in Karachi are complaining that prices have doubled in the past 5-7 years.
2. The food prices in Islamabad are less expensive than Karachi?

There was an article in Dawn that said prices are going to rise about 10% in 2013 because government will stop supporting lower price on food items. Do you know anything about that?

I send my mother $250 per month from the US but now is it going to be enough?

Hopewins said...

No. No. No. I cannot accept this.

Dr. Haq, please tell us that this is not correct....

DHAKA Stock Exchange (DSE) has a market capitalization of 50 Bln$.

KARACHI Stock Exchange (KSE) has a market capitalization of 40 Bln$.

Huh? You have been telling us that KSE has been the rock star of the stock-exchange world in recent years. So how did the Bangalees manage to surpass us? When did this happen?

What's next? Will the Kathmandu Stock Exchange surpass us in 10 years time?

What is going on here?

Riaz Haq said...

HWJ: "DHAKA Stock Exchange (DSE) has a market capitalization of 50 Bln$."

The actual market cap of DSE companies is Tk 2,279.08 billion (US$ 28 billio), Tk 378.46 billion or 14.24 per cent lower than that of January 01, 2012.

Hopewins said...

^^RH: "The actual market cap of DSE companies is Tk 2,279.08 billion (US$ 28 billio), Tk 378.46 billion or 14.24 per cent lower than that of January 01, 2012."

Okay. Thank you for the correction. Now let us round up all the numbers:

(1) Dhaka Stock Exchange:
Current: 28 Bln$. Down 14.3% from Jan 01, 2012. Therefore,

Jan 01, 2012 Market Cap: 32.7 Bln$

(2) Karachi Stock Exchange:
Current: 46 Bln$. Up 50% from Jan 01, 2012. Therefore,

Jan 01, 2012 Market Cap: 30.5 Bln$

So are you saying that the Dhaka Stock Exchange Market Cap was about the SAME as the Market Cap of our Karachi Stock Exchange 1-year ago?

That is shocking. Does that mean that Bangladesh has better capital markets than we do, even though their economy (in USD) is only half the size of ours?

What is going on here?

Shivam said...

By the way, while you debate size of KSE and DSE, let me remind you that BSE has market capitalization of 1200 billion USD and NSE a market capitalization of 1100 billion USD.

I am sure KSE will catch up with us any day now :)

Hopewins said...

^^Kadeer: "FDA has approved highest number of pharmaceutical plants in India outside the US. According to the PhrMa 50% of the generics will be imported and of that 60% comes from India.

Pakistan can do the same starting with the Gulf countries.."

What is so special about the Gulf countries that they would buy from us rather than from the more-established Indian companies?

Are we discussing a special niche like "Halal Pharma"?

And even if we carve out a special "Halal Pharma" niche, what is to stop the Indians from jumping in-- especially since the top Seminaries of South-Asia are actually located in India.

Riaz Haq said...

HWJ: "What is so special about the Gulf countries that they would buy from us rather than from the more-established Indian companies?"

If the Korean auto and electronics companies had this attitude about the Japanese competitors, there would be no Samsung or Hyundai.

Riaz Haq said...

Here's Pakistan Mercantile Exchange Commodity Review report:

Despite a disappointing 2011, many commodities rebounded in a year that was tough for all asset classes. Among agricultural products, wheat and soybeans yielded the highest gains and coffee the biggest loss while in metals, gold's rally stretched to a 12th year whereas oil posted its first annual loss since 2008 as commodities ended 2012 focused on the U.S. fiscal crisis after riding through a blistering drought and Europe's debt debacle.

Stocks showed best performance in three years after posting the worst returns in 2011, beating bonds, commodities and the dollar. The major force behind stocks is central banks. The MSCI All-Country World Index of equities increased 16.9 percent in 2012. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 0.1 percent, while the U.S. Dollar Index (DXY) lost 0.5 percent. Bonds of all types returned 5.73 percent, on average, according to Bank of America Merrill Lynch’s Global Broad Market Index.

Despite a mixed price trend over the year, the FAO Food Price Index (FFPI) averaged 212 points in 2012, 7 percent (17 points) less than in 2011.

PMEX commodity index increased by 9.60 % during the year 2012 which is based on seven commodities Gold, Silver, Crude Oil, Rice, Sugar, wheat and Palm Olein.

Hopewins said...

Here is an article that talks about the meteoric rise of our share market--

QUOTE: "Seemingly against the odds, Pakistan's stock market has continued to defy expectations, outperforming the rest of Asia outside Japan for the past 18 months and all of the emerging markets since last March. But that stellar market performance has masked an economy with deep, deep problems....

.... Sometimes there is a disconnect between economic fundamentals and investment returns but one cannot escape the former forever".

Riaz Haq said...

HWJ quotes: " Sometimes there is a disconnect between economic fundamentals and investment returns but one cannot escape the former forever".

The stock market has traditionally been viewed as an indicator or "predictor" of the economy. Many believe that large decreases in stock prices are reflective of a future recession, whereas large increases in stock prices suggest future economic growth.

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.”

Hopewins said...

Dr. Haq,

Please change the Business week link in the comment above. Or at least post this comment below yours so that readers can also access the actual article with the picture of Tahira, her son and her new Microwave.

Thank you.

Hopewins said...

^^RH: "Here's Bloomberg on informal savings and investment in Pakistan...

The bottom line: The savings rate in Pakistan is probably higher than the official 10.7 percent, thanks to the near-universal use of savings circles"


1) See Table 1.6 on Page 13:

Clearly, our domestic savings rate was about 16% in 2006. By 2012, however, it had COLLAPSED to a pathetic 9%.

How does this "informal savings circles" theory account for this COLLAPSE in the "formal" savings rates? Have people STOPPED using "formal" savings channels?

2) Assume that Tahira Bibi gets togther with 11 of her friends to form a pool. Each of them "saves" 500 PKR a month to put into the pool. Each month, 1 of them uses the proceeds of the pool to buy a 6000 PKR microwave (picture shown).
QUESTION: How much "savings" have these people added to the Domestic Savings of Pakistan in the first month by vitrue of their "pool"? How much will they add in the second month? In the nth month? At the end of the year?

Does the author even know what "savings" really are in the macroeconomic sense? If one person consumes what another person has saved, what effect does it have on the macroeconomic savings rate of Pakistan as a whole?

Yes? Any answers?

Riaz Haq said...

HWJ: "Does the author even know what "savings" really are in the macroeconomic sense?"

The author may or may not, but Dean Khan quoted in the article does.

Read the piece carefully to understand how people are investing their savings.

"Nadeem is looking forward to his payout so he can put a new roof on his house."

"Now he’s (refering to Ali) a few months away from getting 400,000 rupees ($4,100) from a savings group of 16 shopkeepers into which he’s been paying 1,000 rupees a day for almost a year. He plans to put a down payment on an apartment."

Another key point that Mangi misses is that many Pakistanis avoid banks because they consider the interest-based banking un-Islamic. This is the reason why Islamic banking is growing rapidly in Pakistan. Here's an excerpt of a recent piece in The News:

LAHORE: The share of Islamic banking in Pakistan has increased to 8.2 percent. It now has 1,000 branches, 650 of which are operated by dedicated Shariah compliant Islamic banks, according to an Islamic banking official.

According to Global Islamic Finance Report 2012, the size of the Islamic banking industry has grown to $1.35 trillion with the annual growth rate of more than 20 percent. Globally the Islamic financial industry now comprises 430 Islamic banks and financial institutions and around 191 conventional banks with Islamic banking windows operating in more than 75 countries, it said.

The share of Islamic banking in Pakistan has reached 8.2 percent in assets and 8.9 percent in deposits, said Shafqat Ahmad, country head of Al-Baraka Islamic Bank.

“Our Shariah experts have worked relentlessly to develop asset-based products. Five years ago, 99 percent of the Islamic banking transactions were in Muharaba and there were no asset-based products,” he said. Today, the share of Muharaba-based transactions has decline to 45 percent and 55 percent transactions are in asset-based products such as Ijara, Istasna, Sukuk and Musharqa, he added.

Ahmad said that Islamic finance, with its roots in a moral economic model that supports productive economic activity and discourages excessive leveraging and imprudent risk taking, can play an important role in rebuilding the financial system.

Investment financing has now peeped into Islamic banking, he added. “Islamic banks are now financing large projects such as fertilisers, etc. We are still behind Malaysia and some other Islamic countries in the Middle East where Sukuk market is flourishing and crowding out conventional banking products,” he said, adding that experts predict that the asset-based Islamic banking would largely replace conventional banking in these countries.

“Entrepreneurs in Pakistan are turning towards Islamic banking in large numbers,” said Ahmad, adding that they may change from one Islamic bank to another but they do not go back to conventional banks once they adopt Islamic mode of banking.

Riaz Haq said...

Here's an ET report on Pakistan's exclusion from Morgan Stanley's Emerging Market Index:

The MSCI Emerging Markets Index is a free float-adjusted market capitalisation index, which measures equity market performance of emerging markets that include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. With 821 constituents, the index covers approximately 85% of the free float-adjusted market capitalisation in each country.

Pakistan was part of the Emerging Markets Index for 15 years, but MSCI dropped the country in December 2008. According to Askari, MSCI did not remove Pakistan because of any quantitative changes: rather, this was done solely because of the imposition of the floor rule by KSE authorities that year, which shut the stock market for over three months in August 2008.

“We should keep in mind that the Czech Republic and Peru have three companies each, while Hungary and Morocco have four companies each which meet the requirements of the MSCI Emerging Markets Index,” Askari said, emphasising the fact that in terms of the number of eligible companies, Pakistan is ahead of these four countries.

“They have not given us any logical reason yet. They keep saying we’re reviewing your case, but there hasn’t been any definite answer. Their reluctance is a mystery to me,” Askari added.

The MSCI communications team did not respond to repeated queries from The Express Tribune.

According to the MSCI Global Investable Market Indices Methodology issued in March 2011, a country must have at least three companies with full market capitalisation of $876 million, float market capitalisation of $438 million and 15% Annualised Traded Value Ratio – a liquidity measure – to become part of the MSCI Emerging Markets Index. Five Pakistani companies currently fulfil these requirements.

As for MSCI’s market accessibility criteria, capital market regulations in Pakistan do not discriminate between local and foreign investors, as the latter have no special registration and/or licencing requirement. Similarly, foreign investors may acquire up to 100% shares in a listed company through the secondary market.

As for the ease of capital inflows/outflows, which is another criterion for a country’s inclusion into the MSCI Emerging Markets Index, the regulatory framework in Pakistan allows foreign investors to trade freely in equities and debt instruments, he said. There are no restrictions on foreign investors taking their capital out of the country, he pointed out.

“The Securities and Exchange Commission of Pakistan has implemented necessary measures to ensure that market discipline and integrity are not compromised in the future by ad hoc decision-making, such as floor rules, by the country’s stock exchanges,” Askari added.

While mentioning that the returns on the KSE-100 index were 49.3% in rupee terms and 37% in dollar terms in 2012, Askari said MSCI must review its decision to keep Pakistan out of its Emerging Markets Index.

Hopewins said...

^^RH: "The author may or may not, but Dean Khan quoted in the article does.."

Here is your hero "Dean Khan" on the disaster that is the macroeconomic foundation of our economy---

Jan 22, 2013:

QUOTE from Dr. Ashfaque Khan: "As to the performance of the SBP and its governors, there can be no two opinions that it has been disappointing. Rather than pursuing a prudent monetary policy, they pursued a ‘ballot monetary policy’. While the government and its economic team have systematically destroyed the economy of Pakistan, the SBP has become a partner in crime by relinquishing its responsibilities as a regulatory body."

Well? Where are those rose-tinted glasses?

Riaz Haq said...

Here's an ET story on new pharma investment in Pakistan:


Reckitt Benckiser (RB) Pakistan will invest between $5 million to $15 million within the next three years in the country, Salvatore Caizzone, executive vice president of Reckitt Benckiser Russia, Middle East and Africa region told The Express Tribune.

Talking to this reporter during an interview on Tuesday, Caizzone said RB Pakistan is going to set up a new factory in Karachi, regardless of the persistent energy crisis in the country. “Decisions like these are not taken for the short term. We’re investing heavily in Pakistan because we have a positive outlook on this country,” he said.

Refusing to reveal the revenue figures or the profit margins of RB Pakistan, Caizzone said that emerging markets contribute 42% to RB’s net revenue globally: their share is expected to increase to up to 50% by 2016. “Without stating the actual statistics, all I can say is that, for us, Pakistan is one of the top 10 markets in the emerging economies,” he said.

RB Pakistan has introduced 12 brands in Pakistan, in the categories of healthcare, hygiene and homecare. Its most recognisable products include Strepsils throat lozenges, Disprin painkillers, Dettol disinfectants, Mortein insecticides, Harpic household cleaners and Cherry Blossom polishes.

“Although we don’t reveal our actual growth numbers, we have been growing at the higher end of double digits in Pakistan. I know that some of my competitors will be very happy to grow at 7-8%, but we’d be extremely unhappy if this happens to us,” he said. He persistently refused to state the actual growth rate of RB Pakistan.

However, we found out through our sources that the combined annual growth rate of RB Pakistan for the last three years has been 16.8%. Its total revenues increased from Rs4.5 billion in 2009 to Rs7.2 billion in 2012, our sources said.

Caizzone says brands falling in the healthcare segment are the top priority for RB, followed by hygiene and homecare brands. The largest chunk of growth in Pakistan has come from the hygiene segment, he noted; in comparison, the company’s growth at the global level is divided equally between healthcare and hygiene segments. “We have a very large business of hygiene brands in Pakistan, which is driven particularly by Dettol, Harpic and Mortein. But we have very few brands in the homecare segment,” he remarked....

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.

Hopewins said...

^^RH: "Karachi Bourse closes over 17,000 points first time ever, reports Dawn...."

Here is an article on the KSE by Farhan Bukhari that was published 4 months ago in The Financial Times:

Do you disagree with the gist of the article? Have any of the problems described been solved in the 4 months since this article was published?

Yes? What are your views?

Riaz Haq said...

HWJ: "Do you disagree with the gist of the article? Have any of the problems described been solved in the 4 months since this article was published?"

The FT article says as follows:

>A senior member of the All Pakistan Textiles Manufacturing Association (APTMA) who spoke to beyondbrics on condition of anonymity said; “Interest rate cuts of the kind we have seen in Pakistan bear no relevance to our economy. This summer (2012), many of us had to deal with sharp production losses because there was no electricity”.

But do you know that Pak textile exports in July-Dec 2012 rose 8.55% in spite of the problems the article lists?

Here's an excerpt from Fiber2Fashion:

With a year-on-year rise of 8.55 percent, Pakistan’s textile and garment exports for first half of the current fiscal increased to US$ 6.458 billion from US$ 5.590 billion worth of exports made during the corresponding period of last year.

According to Pakistan Bureau of Statistics (PBS), exports for December 2012 grew to US$ 1.058 billion, compared to exports of US$ 1.009 billion in December 2011.

Product-wise, cotton yarn exports grew by 38 percent year-on-year during July-December 2012, while that of cotton cloth by 12.31 percent, yarn by 53.94 percent, towels by 10.98 percent, tents by 25.39 percent, readymade garments by 13.29 percent and other textile materials by 62.95 percent.

HopeWins Junior said...

^^RH: "But do you know that Pak textile exports in July-Dec 2012 rose 8.55% in spite of the problems the article lists? "

Here's an excerpt from Fiber2Fashion...

You believe the muddled-media too easily. You should check everything before relying on it.

Here is the OFFICIAL data from State Bank of Pakistan:

See Group B (Textiles & Related) in the last two columns for Jul-Dec comparison.

It clearly shows a DECREASE.

Well? You have something to say?

Riaz Haq said...

HWJ: "See Group B (Textiles & Related) in the last two columns for Jul-Dec comparison.It clearly shows a DECREASE.Well? You have something to say?"

Look at the P in parentheses indicating "provisional" data in the Excel spreadsheet in your link. The data in the data in the more recent Fiber2Fashion report that I shared is ACTUAL, not PROVISIONAL.

Riaz Haq said...

Here's PakistanToday on politics driving economy and stocks in Pakistan:

KARACHI - Among other factors, the political activity near the looming general elections in the country is calling the shots when it comes to Karachi Stock Exchange (KSE).
Last Thursday witnessed the KSE climbing to a new high with the benchmark KSE-100 share index peaking beyond 17,000 points level.
The market observers attributed the historic positive to the politico-economic factors developing on the country’s internal and external fronts. The KSE 100-share index gained 148 points to close at 17,056.36 points compared to Wednesday’s 16,908.67 points. The intraday high and low the index hit on the day were recorded at 17,067.58 and 16,908.67 respectively, the closing point of the previous day.
Of the total 353 scrips traded, 205 gained, 123 lost and 25 saw no change in their price. The trading volumes were higher to climb to 271 million shares as against 218 million of the previous session. The trading value also rose to Rs 6.90 billion from Rs 5.49 billion on Wednesday. The market capital grew beyond Rs 4.263 trillion compared to Rs 4.22 trillion a day earlier.
The free float KSE-30 index also set in the green zone and gained 125 points to last at 13,931.66 points against 13,806.38 points of the previous trading session.
The day marked mostly the second and third tier stocks leading the volumes with Fauji Cement, the volume leader, counting its traded shares as 60.334 million, gaining Re 32 paisas on each of its stakes that were priced at Rs 7.48 in the opening and Rs 7.80 at closing.
Turnover on the future market also headed northward to stand at 22.983 million shares compared to Wednesday’s 22.172 million.
According to stocks analysts, the result announcement session had led other positives to help the index peak to the historic high.
Muhammad Sohail, a broker and senior analyst at the KSE, said the announcement of “good” corporate results was the leading attributable factor for Thursday’s stocks market boost.
“Good corporate results, foreign buying and a relative calm on local political front helped the equities to cross the 17000 mark,” Sohail, the Chief Executive Officer of Topline Securities, told Pakistan Today.
Another equity analyst Ashen Mehanti, a director at Arif Habib Securities, said the rate-cut by the central bank in its Wednesday’s T-bill auction had coupled with the favorable announcement factor.
“Stocks closed at record high amid rising trades in the earnings announcements session at KSE after the SBP slashes yield on T-bills,” the analyst said.
Other catalysts Mehanti cited were the investors’ hope for a possible cut in the SBP discount rate to be announced next month, rising local cement prices, easing political uncertainty and renewed foreign interest. The abovementioned factors, the analyst said “played a catalyst role in bullish close in stocks across the board at KSE ahead of major earning announcements due next week”.

HopeWins Junior said...

thought this might interest you since it agrees with some of the things you have been saying on your blog:

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.

Hopewins said...

Whoa there, Cowboy!

Textile exports more than...
40 Billion USD!

Fine print.

Riaz Haq said...

Here's Emirates 24-7 report on a massive property investment deal between Abu Dhabi Group and Malik Riaz:

UAE’s Abu Dhabi Group and Pakistani real estate tycoon Malik Riaz on Friday signed a deal to invest $45 billion (Dh165.15 billion) in Pakistan including building the world’s tallest building in Karachi.

Pakistan’s news channel Geo reported today that $35 billion (Dh165.15 billion) will be pumped in Sindh province while the rest will be invested in Lahore and Islamabad.

Under the deal, Sports City, International City, Media City, Educational and Medical City will be built in Pakistan’s financial capital. The news channel said that world’s Seven Wonders will also be built as part of the project.

The deal is expected to generate over 2.5 million jobs in Pakistan.

The channel, however, didn’t reveal the time for the completion of the project.

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...

Here's a PakistanToday report on KSE-100 performance in Q1-2013:

KARACHI - Hopes for change in the political setup along with strong foreign inflows were the major drivers of the country’s equity market during the first quarter of calendar year 2013 (1Q2013).
The market observers believe that while the May 11 election are around the corner, the equity investors were cautiously looking at the fast-changing political developments in the country. “We anticipate market activity to hinge on political temperature of the country,” viewed Topline analyst Nauman Khan.
The heightened investors’ confidence was also attributed to significant reduction in the policy rate that had facilitated the funds flows towards equity market, said the analysts.
The benchmark KSE 100-share index posted a gain of 6 percent, 5 percent in dollar terms, during the quarter to close at 18,043 and overall market capitalization reached Rs4.4 trillion or $45.2 billion.
“Though the index made a new high of 18,185, on March 01, 2013, the market capitalization was still seven percent, 40 percent in dollar terms, down from its record high of Rs 4.8 trillion ($74.9 billion) achieved on April 18, 2008,” said Khan.
With index achieving our midyear target of 18,000, we re-iterate that index can make a new high by crossing 19,500 in calendar year 2013 as mentioned in our strategy note date December 12, 2012. Abrupt PKR deprecation due to weakness in external account remains the major risk to our assessment.
The positive momentum was accompanied by higher traded volumes. During 1Q2013, average daily traded volumes stood at Rs5.7 billion (US$58.4 million) which compares favorably with Rs4.5 billion (US$46.6 million) recorded in the previous quarter. The average traded volumes are the highest in last 12-quarters.
In terms of shares, average volume stood at 210.6 million which is up 25 percent from preceding quarter, while are highest since 1Q2008 (19-quarters high).
In addition to higher foreign buying, we believe increased participation by individual investors have also contributed to improved depth of the market. Individual participation on an average improved to 50 percent in 1Q2013 as against 48 percent in the preceding quarter.
The foreigners, that hold $3.3 billion worth of Pakistan shares that is 31 percent of free-float and 8 percent of market capital, remained net buyers in 1Q2013.
The offshore investors in the quarter bought shares worth $228 million and sold $158 million resulting in net buying of $70 million as of March 28.
The numbers compare favorably with $65 million net inflow registered in previous quarter.
Giving their future outlook, the analysts reiterated that the market participants were likely to cheer signs of change in the political setup. “Mid caps with high leverage and consumer related business can perform better than large caps in 2013,” said Khan.

Riaz Haq said...

Here's a Daily Times report on Karachi stock market rally:

KARACHI: The Karachi stock market crossed 18,900 points level on the last trading day of the week Friday as earnings frenzy continued to encourage investors to go for buying in oil, fertilizer and cement sectors.

The Karachi Stock Exchange (KSE) 100-share index gained 32.10 points or 0.17 percent to close at 18,917.71 points as compared to 18,885.61 points of the previous session. The KSE 30-share index was up by 10.81 points to close at 14,584.18 points as compared with 14,573.37 points.

“Mixed activity was seen at the market with corporate results season almost coming to an end,” said Topline Sec dealer Samar Iqbal. “Mixed March quarter results were announced today.”

Once again TRG came in the limelight as it closed at its upper cap with 27.5 million shares, she said and added that Engro Corporation and Foods saw some profit-taking ahead of the weekend.

The market turnover went down by 3.53 percent and traded 206.02 million shares as against 213.57 million shares of the previous session. The overall market capitalisation rose 0.34 percent and traded Rs 4.649 trillion as against Rs 4.633 trillion. Gainers outnumbered losers 204 to 146, while 17 stocks were unchanged.

“Stocks closed higher led by second-tier stocks on strong valuations,” said Arif Habib Corporation Director Ahsan Mehanti. “Index remained in a narrow range amid concerns over security unrest in the city, economic uncertainty and rupee fall despite recovery in global commodities and record quarter-end earnings announcements in oil, fertilizer, textile and cement stocks.”

The KMI 30-share index gained 36.24 points to close at 32,930.01 points from its opening at 32,893.77 points. The KSE all-share index closed with a gain of 48.06 points to 13,455.50 points as compared to 13,407.44 points of the previous session.

“The market closed in the green zone with intraday gains clipped by selling pressure in Engro Chemicals and Pakistan Petroleum,” said JS Research analyst Ovais Ahsan. “The banking sector gained led by MCB Bank and UBL as the sector continued to limp out of a long spell of underperformance.”

Adamjee Insurance corrected overbought momentum after a weeklong rally.

“Bulls reined the final session of the week as index came close to 19,000 points level during intraday trade,” said Habib Metropolitan Finance Corporation Salman Vidhani. “Selling pressure in Engro dampened overall sentiment as some stocks also registered a negative close.”

TRG Pakistan Ltd was the volume leader in the share market with 27.54 million shares as it closed at Rs 11.30 after opening at Rs 10.30, gaining Re 1. Lotte Chemical traded 16.43 million shares as it closed at Rs 7.54 from its opening at Rs 7.35, rising 19 paisas. Maple Leaf Cement traded 11.81 million shares and closed at Rs 18.95 as compared to its opening at Rs 19.36, shedding 41 paisas. Pervaiz Ahmad traded 11.50 million shares as it closed at Rs 3.29 as against its opening at Rs 2.57, increasing 72 paisas.\04\27\story_27-4-2013_pg5_17

Riaz Haq said...

Here's a Bloomberg story on Sharif victory raising investors' hopes:

Pakistan’s stocks climbed the most in two months to a record as unofficial election results showed a party led by former Prime Minister Nawaz Sharif winning the most seats in parliament.
The benchmark KSE 100 Index gained 1.8 percent, the most since March 12, to 20,272.28 as of 2:10 p.m. Karachi time, taking its rally this year to 20 percent. Sharif’s Pakistan Muslim League will probably lead a government that will support the nation’s business community, said Farrukh Hussain, who oversees about $110 million as chief investment officer at BMA Asset Management Co.
Sharif, who served two terms as Pakistan’s prime minister in the 1990s, will face the challenge of bolstering an economy hampered by a power crisis and quelling a Taliban-led insurgency that has killed 151 people leading up to the elections. The KSE 100 rallied 8.5 percent in February 1997 when Sharif won his second term. The gauge could rise between 3 percent and 5 percent this week, and 15 percent by the end of the year, BMA Asset’s Hussain said.
“With a Nawaz Sharif-led government, we can see a lot of support for the economy,” Hussain said by phone from Karachi yesterday. “Investors would feel much more comfortable with the incoming government.” BMA Asset’s Pakistan Opportunities Fund has beaten 98 percent of its peers this year, data compiled by Bloomberg show.
Sharif’s party had won 127 seats in the lower house of parliament, according to a tally by state-run Pakistan Television. President Asif Ali Zardari’s Pakistan Peoples Party, which headed the previous administration, took 31 seats, a third of its previous total.
Slowing Growth
The results set the stage for the longer-term stability of the country’s sovereign rating of B minus, Standard & Poor’s Ratings Services said in a statement from Singapore today. That’s six levels below investment grade.
Sharif, whose family owns steel and sugar mills, ended state monopolies in shipping, airlines and telecommunications when in office. Pakistan’s $210 billion economy grew an average 3.8 percent each year during Sharif’s terms as prime minister, according to data on the World Bank’s website. Under Zardari’s five-year administration, growth slowed to an average 3 percent, less than half the annual pace of the previous five years.
The KSE 100 Index (KSE100) surged this year as higher commodity prices and consumer spending boosted earnings of the gauge’s companies by 43 percent in the past 12 months, the most among 17 Asian equity indexes, data compiled by Bloomberg showed as of May 9. That profit growth lured $202 million of stock purchases from overseas investors this year, the most since the same period in 2010, the data show.
Attractive Valuations
The stock rally has driven the gauge to trade at 8 times estimated earnings, the most expensive level in almost two years, according to data compiled by Bloomberg. The last time the gauge traded at this level -- in June 2011 -- the measure slumped more than 10 percent in two months. The current valuation is still 44 percent below the MSCI Asia-Pacific Index’s 14.2 multiple.
“Valuations are still attractive,” Muhammad Imran, who oversees about $203 million as chief investment officer at ABL Asset Management Co. in Karachi. “People will take this election positively. Foreign inflows have been driving the market and this will continue.”
Seven stocks advanced in the KSE 100 today for each one that declines. MCB Bank Ltd., the country’s largest by market value, gained 4.9 percent to 261.60 rupees, poised for the highest close since May 2008. Pakistan State Oil Co. jumped 5 percent to 221.86 rupees....

Riaz Haq said...

Here's a Reuters' report on Templeton and Goldman Sachs bullishness on Pakistan:

After 18 years as a banker at firms such as Citigroup and Nomura, Shaheryar Chishty took a different direction in late 2011, starting an investment firm that, among other things, helped guide Chinese and South Korean money into Pakistan.

While Pakistan is probably not the first place the average investor would choose to park cash, Chishty's timing was spot on. The country's stock market surged 49 percent last year to become one of the five best performing markets in the world.

The victory by former prime minister Nawaz Sharif in Pakistan's general election lifted the stock market to an all-time high on Monday, in a sign that investors, which include Goldman Sachs (GS.N) and Mark Mobius of Templeton, are betting on the prospect of further market gains through a stable government.

"I'm not under-estimating the challenges, but we have one party with a simple majority," Chishty, the Pakistan-origin chief executive of Asiapak Investments Ltd, told Reuters in an interview in Hong Kong on Monday. "A lot of the market's rise happened despite the previous government."

Risks, especially violence by Islamic militant groups, remain constant, yet Pakistan's market is up another 21 percent this year, behind only Japan and the Philippines as Asia's top gainers, according to Thomson Reuters data.

Pakistan's uncertain security environment and a deteriorating economy have failed to keep emerging market fund guru Mobius and Goldman Sachs Asset Management out of the country.

Mobius invested 4.6 percent of his $18.5 billion Templeton Asian Growth Fund's assets in Pakistani shares as of the end of March, more than his exposure to shares in Hong Kong, Singapore or Taiwan, according to data from Thomson Reuters Lipper.

"Pakistan is not a small country and it is strategically significant. However, with the negative press surrounding the country, it has tended to be ignored by investors," said Mobius, executive chairman of Templeton Emerging Markets Group.

Last year, 15 equity funds from Pakistan were among the world's top 100 performers, the Thomson Reuters Lipper data show....

Hopewins said...

FRESH UPDATE! The Economist on KSE:

Riaz Haq said...

HWJ: "FRESH UPDATE! The Economist on KSE: "

So how does Economist explain the fact that KSE-100 has been outperforming BRICS for many years before 2012 when the amnesty took effect? Do the rising profits, low P-E ratios and relatively low valuations not count for anything?

Riaz Haq said...

Here's a NY Times on soaring stock market in Karachi, Pakistan:

If the best time to buy, as the old business adage says, is when there is blood on the streets, then Pakistan’s commercial capital, Karachi, offers the ideal investment opportunity.

For more than a decade, the sprawling seaport megalopolis of about 20 million people has been racked by political, militant and criminal violence that has taken thousands of lives. Yet, over the same period, the city stock market, which is also Pakistan’s main exchange, has posted spectacular results.

Over the past 12 months alone, the Karachi Stock Exchange has surged more than 44 percent, placing it among the world’s top-performing stock markets in dollar terms this year, according to Bloomberg.

That follows a decade of growth in which one dollar invested in an index fund of Pakistani stocks 10 years ago would have earned, on average, 26 percent every year, analysts say, in a period otherwise notable mostly for bad news. As the stock market rose, the Pakistani military leader Gen. Pervez Musharraf fell, Osama bin Laden was captured and Taliban violence spread from the northwest to cities across the country, including Karachi.

Just as surprising, perhaps, Wall Street firms are driving the latest phase of the stock boom. Bad news can make for a good bargain, they say.

“What you see in the popular press is just one part of the picture,” said Mark Mobius, a fund manager at Franklin Templeton Investments, which has more than $1 billion invested in Pakistan stocks, mostly in the energy sector. “There’s another side to these countries, where life goes on. And that’s what we focus on.”

The gloomy image of Pakistan obscures positive aspects of its economy that, investors say, make some companies an attractive bet. Beyond the headline news, much of the country is getting on with normal life. And with a population estimated at nearly 200 million people — a high proportion of them young — Pakistan offers a large, lucrative market for consumer goods, construction and financial services firms, which constitute the bulk of the Karachi stock market.

The biggest publicly listed companies — like the multinational NestlĂ©, the Oil and Gas Development Company and Fauji Fertilizer, a military-run conglomerate — pay handsome dividends, which makes them attractive to foreign investors.

And the recent election victory of Prime Minister Nawaz Sharif, a business tycoon, has injected confidence into the financial community, which had been wary of the previous government.

For a time, Pakistani stocks were undervalued by as much as 50 percent to account for risk, compared with a regional discount of about 20 percent, said Taha Javed, a financial analyst in Karachi. Now, as foreign investors pile in, he said, “we are catching up.”...

Riaz Haq said...

THE size of Pakistan’s informal economy is estimated to be as much as 56 per cent of the country’s GDP (as of 2019). This means that it’s worth around $180 billion a year, and that is a massive amount by any yardstick. by Dr. Lalarukh Ejaz, Assistant Professor, IBA Karachi

The country’s large black economy is inextricably linked to the levels and quality of governance exercised by the state. In the course of fieldwork for my doctoral research for the University of Southampton, I found that many Pakistani women who were setting out starting their own businesses did so in the informal sector. The reasons they gave usually related to their experience of dealing with the bureaucracy and government machinery in Pakistan which they found to be dominated by red tape and tedious and complicated procedures.

This is precisely what drives many people who want to engage in economic activity towards the undocumented economy. The headache of having to deal with a large bureaucracy, of complying with complicated and long registration procedures, of getting approvals and licences from various government agencies and departments make it difficult for most people to operate within a documented framework.

A large black economy is an indication of misgovernance and indicates a failure of the government to ensure that all businesses and entrepreneurial ventures are included in the formal sector. This failure in turn leads to reduced tax revenue collection since all entities outside of the formal economy do not pay any tax to the government.

Given that the size of the black and informal economy is estimated at over half of the country’s GDP, bringing it under the documented net would bring hundreds of billions in tax revenue. Those funds would then be spent on social sector development projects and help the FBR meet its annual revenue collection targets.

The solution is to increase the size of the formal economy and this can be done by making transparent and efficient those institutions tasked with registering and regulating businesses. Instead of harassing businesses and entrepreneurs, agencies like the FBR should act as facilitators and make it easier for new ventures to be registered and come under the documentation net. This would in turn be good for the FBR because achieving the tax collection target would be easier than if they were in the black economy.

Government requirements for new businesses are linked to the general level of governance. A state whose primary aim is to improve the lives of its citizens will prioritise good governance over all other things and will formulate and implement policies that enable this. In fact, such a state will also be able to realise that having such priorities ends up helping it as well, not least because a happy populace is a more economically productive populace.

Unfortunately, in a country like Pakistan, so far, this has not been the case. A multitude of licences and permissions are required from a wide variety of federal, provincial and local government departments to operate a business or a store. Having to comply with all of these requires not only a lot of time on the part of the entrepreneur but also funds for greasing the cogs of the bureaucratic machinery that regulates businesses and commercial enterprises in Pakistan.

The result of this is that a significantly growing number of entrepreneurs, and especially those that happen to be female, are increasingly veering towards the informal sector. This is both good and bad — good because it enables economic activity to take place, and jobs to be created, away from the unwanted glare of government inspectors and officialdom, and bad because the incomes generated from such activity don’t end up getting counted in the national GDP and nor are taxes paid on it.