Pakistan outperforms rest of Asian stock markets

[Naveed Yaseen]

KARACHI, March 6: The Bank of America buy-out of Merrill Lynch has all but changed the face of the ML logo.

It is difficult not to notice that under the shade of the BoA name, the all too familiar ML bull now looks a little lean and thin. That, nonetheless barely disturbs the flow of some intelligent research work from the world’s largest retail brokerage.

In its report this week, ML singles out the Pakistani equity market as the best performing in the Morgan Stanley Composite Index (MSCI) in the first two months of 2009.

Pakistan’s stock market put up an encouraging performance year-to-date with MSCI Pakistan rising by 14 per cent in February and outperforming MSCI Asia price (AP) ex-Japan, by 19 per cent.

‘Attractive valuations, favourable regulatory change on impairment losses, earnings performance and prospects of an interest rate cut have lifted stock prices,’ say the ML analysts. They point out that Pakistan was the only Asian country that was yet to go through an interest rate down-cycle.

KSE equities had clawed back by 18 per cent since their low and yet trading at the price-to-earnings (p/e) of 5.2 times on 2009 estimated earnings. That put the market still at a discount of 48 per cent to its regional peers.

Moreover, the country stocks offer an attractive 2009 estimated dividend yield of 11.6 per cent. ‘That said, we see a range-bound market near term,’ the analysts caution. But investors were allowed to take heart by the belief that downside was limited, due to attractive valuations.

Ironically, Pakistan was pushed out of the MSCI Emerging Market Index in Dec 2008, due to the imposition of a four-month long stock price ‘floor’. But of late, the MSCI had started a consultation process for inclusion of the country in MSCI Frontier Index effective June 2009.

ML noted in its report: ‘While Pakistan comfortably meets all the conditions set for inclusion in MSCI Frontier Market Index, strong equity price performance will only strengthen Pakistan’s case and may even open up a possibility of an upgrade back into MSCI Emerging Market Index.’

Pakistan politics takes the centre stage with several pointers, which have been mentioned by the ML analysts.

Performance of the regional market based on Feb 26 data, as compared to the Pakistan p/e multiple of 5.2 and dividend yield (D/Y) of 11.6 stood as follows: The numbers show p/e and D/Y respectively: China 8.6 and 4.6; India 11.4 and 2.2; Indonesia 13.9 and 3.5; Malaysia 11.8 and 3.3; Singapore 10.4 and 4.7; South Korea 13.4 and 1.8; Taiwan 21.9 and 5.3 and Thailand 7.9 times and 6.0 per cent.

Market gurus say that the ML report does hold water. Stock strategist, Mohammad Sohail mentions that the Pakistan out performance in the first two months of the current year, owe itself to the market being least affected by global recession. ‘And secondly’, says Sohail, ‘Interest rates have only recently started to decline in the country, thereby providing investors the opportunity and incentive to put their funds in equity market.’

http://www.dawn.com/wps/wcm/connect/Dawn...markets-ts