Monday, May 18, 2009
Mumbai Stocks Fueled by Post-Election Optimism
In a resounding vote of confidence for Prime Minister Manmohan Singh's continuing leadership, Indian and international investors are celebrating with 17% jump in the 30-share BSE index, or 2,110.79 points, to 14,284.21 points, for its highest close since Sept. 11. Trade was finally halted for Monday before noon.
Here are the key headlines from Reuters about strong and positive investor reaction in Mumbai:
* Stocks jump 17 pct, biggest rise in 17 years
* Circuit breakers halt trade twice; markets closed early
* Rupee up 9 percent from low in early March
* Morgan Stanley raises stock, growth projections
* Bond yields drop, stake sales seen to fund deficit
Next door in Pakistan, the investor reaction to news of the day was muted and the KSE-100 remained essentially flat. Karachi Stock Exchange (KSE) was up in the morning but then the sellers came in on Monday and the benchmark KSE-100 Index closed 5 points down to 7,172.
Amidst major counterinsurgency operations in and around Swat Valley and growing refugee crisis, there are signs of optimism by investors and bond holders in Pakistan's economy. The KSE-100, Karachi's stock index, is up 27 percent this year, compared with a 12 percent gain in MSCI’s emerging-market stock index of 26 emerging economies, including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela. The Pakistani rupee, which declined 22 percent against the dollar last year, the second-worst performer in Asia, fell 1.8 percent this year.
Currently, KSE-100 companies are trading at a forward price-earnings multiple of about 5 versus Mumbai Sensex PE ratio of over 10. So a lot of the worst case pessimism is already reflected in the share prices of some of the high-quality blue-chip companies trading at Karachi stock exchange. Could it get worse? It's possible but not likely. There appears to be a lot more upside than downside at this time. Between 2001 and 2007, as Western governments fretted about Pakistan's nuclear weapons falling into the hands of militants, the KSE-100 rose risen more than 10-fold. It is capable of repeating the same performance from the lows of this year.
According to Pakistaniat website, Pakistan’s trade deficit narrowed by almost 50% in March, as imports declined faster than exports. In the same month, worker remittances were a record high at US$743 million an increase of 23% over last year. While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.
On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.
At the end of calender year 2008, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year on year. Similarly, FDI inflows jumped 100 per cent year on year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper.
Pakistani military's robust response to the rising militancy appears to be backed by a significant majority of the people. If the Pakistani political leadership can deal with its fall-out, such as the humanitarian crisis, and sustain the popular support for the ongoing military action, and the government executes a rational set of economic policies, it is quite reasonable to expect an economic rebound within a year.
Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis should be temporary as well. A relatively rapid rebound can be expected in 2010, with a projected revival of GDP growth to 7 per cent, spurring job growth again.
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