Friday, December 30, 2016

Pakistan Stock Market is the World's Best Performer Over 1 Year & 5 Years

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.

Related Links:

Haq's Musings

China-Pakistan Economic Corridor

Investors Undeterred By Modi's Threats to Isolate Pakistan

ADB Raises Pakistan GDP Forecast

Growing Middle Class in Pakistan

Rising Energy Consumption

China-Pakistan Economic Corridor

Pakistan's Thar Desert Sees Development Boom

Gwadar vs Chabahar Ports


13 comments:

Riaz Haq said...

Challenges for Pakistan economy:

http://www.pakistantoday.com.pk/2016/12/31/year-2016-ends-posing-new-challenges/


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

https://www.thenews.com.pk/print/175825-Fired-up-by-improving-economystocks-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.


http://www.satp.org/satporgtp/countries/pakistan/sindh/datasheet/datasheet.htm

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.

http://www.spectator.co.uk/2016/12/pakistan-is-winning-its-war-on-terror/


https://www.numbeo.com/crime/rankings.jsp?title=2016-mid

Riaz Haq said...

With 14% CAGR, #Pakistan #MSCI index beats #India's 8.39% CAGR in stock returns since Year 2000 http://ecoti.in/IfRrHb via @economictimes
Pakistan's stock market has outperformed the Indian equity market with a huge gap since the beginning of the new century.

Over the past 16 years, the MSCI Pakistan index climbed over 14 per cent in dollar terms on a compounded annual growth (CAGR) basis, while the MSCI India index has advanced 8.39 per cent annually during the same period, data available with Bloomberg showed

The KSE100 index of the Karachi Stock Exchange rallied 2,625 per cent from 1,772 in January 2000 to around 48,300 in December 2016, while the Sensex of the BSE advanced 431 per cent in this period.

KSE100 tracks the performance of biggest companies by market capitalisation from each sector of the Pakistani economy listed on bourses.

On the hand, the 30-share Sensex jumped from 5,005 in December 1999 to 26,626 on December 30, 2016.

The macroeconomic conditions of India look strong in terms of gross domestic product (GDP). According to an earlier Economic Times report quoting the Central Intelligence Agency, India's real GDP growth rate was at 7.3 per cent in 2015, ranked 12th globally, compared with Pakistan's 4.2 per cent, ranked 60th.

Riaz Haq said...


#Pakistan #inflation eases to 3.70% in December 2016 with steep drop in prices of #chicken, #onions & #tomatoes.

http://timesofoman.com/article/99696/World/Pakistan/Pakistan-inflation-eases-to-370-in-December

Pakistan's annual inflation rate eased to 3.70 per cent in December from 3.81 per cent in November, the Bureau of Statistics said on Monday.

On a month-on-month basis, prices decreased by 0.68 per cent in December compared with November, the bureau said.

Average inflation for the July-December period stood at 3.88 per cent, compared with the same period last year.

The steepest rise in year-on-year prices was seen in the prices of gram flour and pulse gram. The steepest drop in year-on-year prices was in the price of onions, tomatoes and chicken.

Shahida said...

My 401k has no Listing for Pakistan. Also my advisor doesn't recommend investing in just Pakistan - why? Please

Riaz Haq said...

Shahida: "My 401k has no Listing for Pakistan. Also my advisor doesn't recommend investing in just Pakistan - why? Please "

401K plan investment options usually do not mention individual stocks or country ETFs.

But I'm sure some of the international funds listed among you 401K options invest in Pakistan.

For individual investors there's the Pakistan ETF (PAK) listed on NY Stock Exchange.

And all funds investing in the MSCI EM index buy Pakistani shares.

Riaz Haq said...

Nestle #Pakistan' Swiss chief says country's #economy poised for rapid accelerating growth https://www.thenews.com.pk/print/176502-Nestlé-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...

#Pakistan #cement production capacity projected to rise to 72 million tons a year in 2-3 years. #CPEC
http://tribune.com.pk/story/1285619/cement-production-capacity-projected-rise-26m-tons/

Encouraged by consistent domestic demand and government’s focus on a host of infrastructure projects, the cement industry has planned to increase its capacity by 26.25 million tons over the next two to three years to support a smooth growth of the national economy.

Reviewing the six-month performance of the industry, All Pakistan Cement Manufacturers Association Chairman Sayeed Tariq Saigol said sales of the industry rose 8.6% and reached 19.81 million tons in the first half (July-December) of current fiscal year 2016-17.

“The growth trend indicates that in the next two years the current production capacity of 46 million tons will be insufficient to meet domestic demand. The industry is making massive investments to add new capacities,” he said.

He anticipated that the capacity would increase to 72.25 million tons in the next two to three years with additional domestic sales of 26 to 28 million tons.

Saying that cement consumption was considered a strong barometer of economic growth, Saigol asked the government to consider reducing taxes in order to give a boost to cement demand.

He boasted that cement was one of the most technologically advanced industries that had made inroads even into the Indian market despite tariff and non-tariff barriers. “Pakistani industry should also be protected in the same manner,” he said.

In the 2016-17 budget, the government increased taxes on cement from Rs600 to Rs1,000 along with 17% sales tax. The increase would take government revenue on cement sales from the previous Rs2,492 to around Rs3,250 per ton, he said.

According to data released by the association, domestic cement sales grew 11.07% in the first half of current fiscal year compared to dispatches in the same period of previous year. Exports, however, fell 3.53% in July-December 2016.

Riaz Haq said...

2017 on the Frontier: #Pakistan, #Bangladesh Top Picks For Big Stock Gains http://www.barrons.com/articles/2017-on-the-frontier-pakistan-bangladesh-top-picks-1483767218 … via @barronsonline

In developing-market investing, the cool kids are “emerging” and the wannabes are “frontier.”

The indexers at MSCI decide who’s cool and who’s not after analyzing a market’s liquidity and openness to foreign investment, among other factors. Where a country is placed can make or break local markets—and the exchange-traded funds that track them. Last year, Pakistan was a big winner, with a 33% gain after MSCI said the country would graduate from frontier to emerging in 2017. Nigeria, which MSCI said could fall out of frontier market status completely in 2017, slipped 39%, with currency devaluation crushing returns.

Pakistan’s sharp gains helped the MSCI Frontier index produce a barely positive total return of 3% in 2016, much less than the return of the iShares MSCI Emerging Markets ETF (ticker: EEM), which was up 11%.

Because of frontier markets’ volatility and disparate membership, index funds usually aren’t the best way to play them. While there are 23 frontier countries, the iShares MSCI Frontier 100 ETF (FM) is dominated by Kuwait, (21% of holdings), followed by Argentina (16%), Pakistan (12%), and Vietnam (8%). Africa is underrepresented. Making index investing less appealing is the wide-ranging performance of individual stocks.

EXPERIENCED STOCKPICKERS are the best alternative for fund investors seeking undiscovered values and portfolio diversification in these markets. We spoke with some active frontier market investors to get their ideas for the new year. With its coming ascension to emerging market status, Pakistan remains a favorite, because China is investing in its transportation infrastructure. Another choice: Bangladesh, where millions of rural poor are expected to inch toward the middle class. Vietnam remains attractive but looks more vulnerable than others, given recent volatility and geopolitics.

The Chicago-based managers of the Driehaus Frontier Emerging Markets fund (DRFRX), which rose 9% in 2016, attribute their outperformance to avoiding energy names and some traditional banks that had lending problems. They took some profits in Vietnam and favor mobile-banking plays elsewhere. Two 2017 picks: telecom Safaricom (SCOM.Kenya) and BRAC Bank (BRAC.Bangladesh). Each has a burgeoning mobile financial platform that could produce 25% compounded annual earnings growth. And while each stock has jumped, growth rates give the stocks more room to run, says Chad Cleaver, a co-manager of the Driehaus fund.


Asha Mehta, who focuses on emerging and frontier markets at Acadian Asset Management in Boston, is a fan of infrastructure plays in Pakistan and Vietnam. One is Hoa Phat Group (HPG.Vietnam), among the country’s largest steel producers, with a market value of $1.6 billion. Despite improving sales and increased market share, its trailing price/earnings ratio is low at roughly seven times. She expects Vietnam, as well as Argentina and Romania, to eventually make their way to emerging markets, which, as investors in Pakistan discovered, can provide a nice boost for portfolios. Mehta believes Argentina could make the jump as soon as May.

Of course, risks abound. But even a U.S. trade war with China could end up bolstering frontier markets that benefit from Chinese investment.

Riaz Haq said...

#WorldBank raises #Pakistan’s #GDP growth forecast to 5.2% in FY17, 5.5% in 2018 and 5.8% in 2019

http://tribune.com.pk/story/1291709/world-bank-revises-pakistans-growth-rate-upwards-5-2-fy17/

ISLAMABAD: The World Bank has revised Pakistan’s growth rate upwards to 5.2% for fiscal year 2017 and 5.5% for 2018.

It previously estimated growth in Pakistan’s gross domestic product (GDP) at 5% and 5.4% for FY17 and FY18, respectively.

The report ‘Global Economic Prospects; weak investment in uncertain times’, states that the uptake in activity is spurred by a combination of low commodity prices, increasing infrastructure spending, and reforms that lifted domestic demand and improved the business climate.

In Pakistan, growth is forecast to accelerate from 5.5% in fiscal year 2018 to 5.8% in fiscal year 2019-20, reflecting improvements in agriculture, infrastructure, energy and external demand.

The report further mentioned the successful conclusion of the IMF Extended Fund Facility (EFF), aimed at supporting reforms and reducing fiscal and external sector vulnerabilities, lifted consumer and investor confidence.

The China-Pakistan Economic Corridor (CPEC) project is also tipped to increase investment in the medium-term, and alleviate transportation bottlenecks and electricity shortages.

Earlier in November, whilst releasing its report ‘Pakistan Development Update – Making growth matter’ the World Bank had projected Pakistan’s economy to grow at 5% in the ongoing fiscal year, meaning that the country was to miss the government-set target of 5.4%.

The Washington-based lender, in that report, added that the country’s economy could see a growth of 5.4% in FY18 on the back of continued mushroom growth in the services sector, recovery of agriculture and uptick in infrastructure investment.

“The services sector, which comprises more than half of the economy, is expected to be the primary source of growth,” stated report.

Additionally World Bank Country Director for Pakistan, Patchamuthu Illangovan, has stressed on the need for increased investment in social sectors like health, education and nutrition. “All this would lead to a vibrant and dynamic society as well as the economy,” he has stated.

Riaz Haq said...

All shares available/float in #India are worth roughly the same as total capitalization of #Nestlé http://econ.st/1dah7C1 via @TheEconomist

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