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Equity market records highest return in a quarter since 2002

By Tanveer Ahmed

KARACHI: Pakistan’s equity market recorded the highest return in a single quarter during July-September 2009-10 since the calendar year 2002—thanks to bullish sentiment triggered by IMF funding and flocking of foreign portfolio investment.

During the 1st quarter of current financial year, benchmark KSE-100 index gained 2,187 points to close to 9,439.67 on September 30, 2009, making 31 percent improvement from 7,162.18 levels on June 30, 2009.

“This was the highest return posted by the KSE-100 index in single quarter since CY2002,” analyst Syed Abid Ali at Arif Habib Securities pointed out and attributed it to positive stance by the international rating agencies, healthy foreign inflows, successful army operation in Swat and improving macroeconomic situation.

And it resulted in 18 months high Foreign Portfolio Investment (FPI) of $226.63 million out of which $156 million was during September alone.

Pakistan has shown quite a bit of improvement on the macroeconomic front.

Although economy is not yet out of the stormy waters yet, however lowering inflation

(from 24.83 percent in August 2008 to 10.93 percent in August 2009), strengthening foreign exchange reserves (27 percent QOQ growth), highest ever workers’ remittances of $ 1.53 billion (25 percent YOY growth) and IMF inflows of $ 1.12 billion are showing some signs of relief, which bode well for the market.

Despite 52 percent year to date return, the benchmark index still offers lowest price earnings ratio and highest dividend yield in the region. Currently KSE is trading on a PE multiple of 9.22 which is 50 percent lower than the regional average of 18.34.

This points towards a sustainable foreign interest until a reasonable discount between KSE and the regional market is achieved, Abid noted.

The nine-month analysis of the market also suggested that a Pakistan’s $33 billion market has gained 59 percent in local currency and 51 percent in US dollar, based on KSE Index inclusive of dividends, in the first nine months of 2009, after declining by 58 percent (67 percent in US dollar) last year.

Economy regained its momentum due to financial assistance provided by International Monetary Fund (IMF) auditing some major polices while excess global liquidity has also played a key role in enhancing the equity values.

While the rally has been broad based so far, there are few winners that have performed well compared to others. The broader market capitalization (without dividend) has increased by 46 percent in 9-months in local currency terms with US dollar capitalization inching up by 39 percent.

Interestingly, refineries with a meager share of 1 percent were the top performer with an appreciation of 118 percent mainly on the back of increased margins, improving oil prices and stable currency. Besides that the major appreciation was witnessed in the exploration & production (E&P), IPPs and Fertilizer, which are considered as the most defensive stocks with high dividend yields.

On the other hand, insurance companies and investment banks that suffered huge losses in the stock market last year did not perform well amid slowdown in economic activities. Insurance sector lost 23 percent and investment banks 30 percent in first three quarters of 2009.

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