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.

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Rising Energy Consumption

China-Pakistan Economic Corridor

Pakistan's Thar Desert Sees Development Boom

Gwadar vs Chabahar Ports


Riaz Haq said...

Challenges for Pakistan economy:

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

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

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

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

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

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

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

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

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

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

Riaz Haq said...

Fired up by improving economy,stocks seen skyrocketing in 2017

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

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

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

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

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

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

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

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

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

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

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

Riaz Haq said...

South Asia Terrorism Portal (SATP) data on terrorism in Sindh:

Total Terror Deaths in Sindh:

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

Bomb Blasts in Sindh:

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

Suicide Bombings:

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

Sectarian Deaths in Sindh:

25 in 2016, down from 164 in 2015, 86 in 2014 and 122 in 2013.

Riaz Haq said...

Just three years ago, according to the Numbeo international crime index, Karachi was the sixth most dangerous city in the world. Today it stands at number 31 — and falling.

Riaz Haq said...

With 14% CAGR, #Pakistan #MSCI index beats #India's 8.39% CAGR in stock returns since Year 2000 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.

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 growthé-MD-sees-Pakistan-in-hot-zone-of-high-economic-activity …

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

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

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

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

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

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

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

“Having an emerging middle class, a substantial young population and increasingly health conscious people, Pakistan looks eager to offer market penetration after evolving into a hotspot for investment,” he said suggesting the establishment/enforcement of a National Quality Council to ensure uniform standards throughout the country and to further aid investment for food companies.

Riaz Haq said...

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

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 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.

Riaz Haq said...

After #China investment, #Pakistan's bourse #PSX bets on #derivatives, #ETFs, new fincial products via @ReutersIndia

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

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

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

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

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

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

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

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

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

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

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

The remainder is held by Pakistani retail investors.

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


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

Naqvi said MSCI's announcement helped boost liquidity.

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

Pakistan was dropped from the MSCI Emerging Markets Index when it imposed a floor on the market during the financial crisis in 2008, effectively trapping local and foreign investors for several months.

Riaz Haq said...

#Pakistan #banks show strong growth. #Deposits up 20%, #loans rise 17% in 2016.

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

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

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

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

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

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

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

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

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

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

Riaz Haq said...

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

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

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

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

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

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

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

Riaz Haq said...

National Assembly approves Companies Bill 2017 to stimulate economic growth

National Assembly on Monday unanimously passed the landmark Companies Bill with an aim to give a boost to national economy and stimulate economic growth.

The more than 500 clauses bill, the Companies Bill 2017 aims at replacing the Companies Ordinance 1984 in order to consolidate and amend the law, besides encouraging and promoting corporatisation in the country based on best international practices.

Created with detailed input by members both from the opposition and the treasury benches, this comprehensive bill will ensure maximum participation of members in decision making process of the company through use of modern electronic means of communication and aim to address the issues relating to protection of interest of minority share holders and creditors.

On the behalf of Finance Minister Ishaq Dar, Minister for Law and Justice Zahid Hamid moved the bill saying the bill will facilitate growth of economy in general and the corporate sector in particular by providing simplified procedure for ease of starting and doing business and greater protection of investors.

He said that the bill will provide adequate manners against fraud, money laundering and terrorist financing as necessary provisions have been proposed regarding powers of the SECP including joint investigation and provision requiring officers of a company to take adequate measures to curb such violations.

This bill also provides for relief and incentives to corporate sector especially small and medium size companies as market experts and business community were at unison during various consultation sessions on the bill.

The legislation will elevate Pakistan’s economy and address long-standing demands of the business community to compete with the international market players with the reduction in cost of incorporating and doing business.

It will also encourage the use of modern communication technology coupled with a simplified regulatory procedure and provide much needed relief to the corporate sector. Moreover, it will also address corporate solvency and growth in Pakistan through expeditious merger and acquisition mechanism. – APP

Riaz Haq said...

Strategy 2017 Pakistan Equities

Arif Habib

Currently the market is trading at forward PE ratio of 9.1, a discount of 22% and 34% to MSCI Emerging Market and Asia Pacific

Kareem Khan said...

Karachi Stock Exchange is volatile, people make millions and loose millions frequently. If you know what you are doing then great, otherwise it might be a better idea to invest in Mutual Funds.