|KSE-100 vs MSCI Emerging Markets Index Source: Wall Street Journal|
This is a continuation of the bullish trend seen in 2012 when KSE-100 also rose nearly 50% to top all Asian market indices. As of December 31, 2013, KSE-100 is up 329% since the end of 2008. It is being driven mainly by rapid growth in revenue and profits of the listed companies. Even after the strong run-up, the market still remains cheap—currently trading at over nine times trailing 12 month earnings—a common valuation measure used by stock analysts, according to Wall Street Journal.
|World Stock Indices Performance 2013 Source: Seeking Alpha|
The fresh investor optimism in 2013 was triggered by the election of Prime Minister Nawaz Sharif whose government is seen to be business-friendly by investors and businessmen. His finance minister Ishaq Dar claimed that Pakistan's gdp growth accelerated to 5% in July-Sept quarter in 2013. It was driven by large-scale manufacturing (LSM) which grew 12.76 per cent in September 2013 from a year ago.
"Pakistan has a fairly diverse economy with a large and young population that needs to be fed and supplied basic infrastructure such as electricity," Wall Street Journal quoted Caglar Somek, global portfolio manager at Caravel Management in New York, as saying. He manages around $650 million of investments. "If you find the companies that supply those basic needs, growing at double digit with high profitability, you can buy them at valuations that are on average 30% to 40% cheaper than their emerging market peers," said Mr. Somek.
Since the general elections of May, 2013, Pakistan has seen smooth power transfer from one civilian government to another. Other major transitions include the change of President, Army Chief and the nation's powerful Chief Justice of the Supreme Court.
Power cuts are now less frequent after payment of power generation companies overdue bills by the federal government. Financing has been closed on several power projects, including ADB financing of a major coal-fired plant in Jamshoro and Chinese loans for the nation's largest nuclear power plant planned for Karachi.
Progress on economic front, however, is not matched by similar progress on the security front which remains the biggest concern for the future of the country and its economy. What is needed is a comprehensive anti-terrorism strategy and plan of action soon.
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