Karachi stock exchange re-emerges as best regional market

[Naveed Yaseen]

Credit goes to excellent corporate earnings, political stability, improving economic indicators and reduction in risk

Saturday, April 04, 2009
By Salman Siddiqui

KARACHI: After witnessing hue and cry in 2008, the Karachi stock market turned again as the best performing regional market as it surged by 17 per cent in the first quarter of calendar year 2009.

“Thanks to political stability and improving economic indicators, the Pakistani market posted a handsome gain of 17 per cent as compared to MSCI EM Asia, MSCI World and MSCI EM returns of 1.2 per cent, minus 11.3 per cent and 0.5 per cent respectively,” noted Atif Zafar at JS Research.

In the quarter to March 31, the leading benchmark KSE 100-share index made a notable recovery of 17 per cent or around 1,000 points and closed at 6,860 points on March 31 compared to the pre-opening level of 5,865 points on January 1. During the quarter, overall market capitalisation recovered Rs200 billion and stood at Rs2,057 billion.

As a matter of record, the calendar year 2008 saw erosion of the sharp gains of the last four years for many reasons as the benchmark index crashed by over 58 per cent to a four-year low of December 2004. In the same year, Rs2,471 billion evaporated from the overall market capitalisation.

Prior to 2008, the KSE had been declared best performing market of the region and the world time and again. For the first time in its small history, the KSE was declared ‘best performing stock market of the world’ in 2002, according to KSE documents.

International magazine Business Week said in 2006 that it (KSE) was well into its fourth year of being one of the best performing markets. Similarly, US newspaper USA Today also labelled the KSE one of the best performing bourses in the world in the same year, according to the KSE documents available with The News.

Noman Abid & Company Assistant Vice President Saqib Hussain observed that the reason behind the fast recovery of the local market in the January-March quarter was its ‘no or little’ linkage with the recent world economic recession.

He said the issues that affected the market were internal and more of a local nature such as liquidity crunch and circular debt. Secondly, there was no huge foreign investment made in local bourses compared to other regional markets.

Moreover, a big part of total foreign investment in bourses was contributed by European countries and not by the US. Saqib Hussain explained that the financial crisis in Europe was the result of the US recession and Europe sustained the slowdown to some extent. Therefore, European investors were not withdrawing their portfolio investment in panic like US investors did.

He mentioned that Franklin Toplink, formed after the merger of two UK companies (one based in UK and the other in Singapore), held the biggest foreign portfolio investment in Pakistan and it never tried to cut short its massive holdings.

However, the foreigners sold $238 million worth of shares during the January-March 2009 quarter, while local institutions and high net worth individuals provided support to the market, Zafar of JS Research said.

Saqib Hussain was of the view that excellent corporate earnings helped the market achieve the status of being the best performing market in the region and in the world again. The launch of Initial Public Offerings (IPOs), new foreign investment in different sectors and expected resumption of privatisation process would help the market perform as the best in future, he hoped.

“On the back of handsome earnings growth and attractive dividend yields, fertiliser and exploration & production stocks outshined the market,” Zafar pointed out.

Stockbroker Aqeel Karim Dhedhi gave credit of re-emergence of the KSE as the best performing market to correcting economic indicators and an unprecedented fall in risk from 6,000 points to 1,500 points. The risk is evaluated by world’s leading assessment companies and ratings agencies. It is measured on the basis of ability of any country to pay back the amount at the time of maturity of bonds that the country had launched in the world markets.

“Pakistan had launched euro bonds and Sukuk in world markets including Middle Eastern countries and when the country’s foreign exchange reserves slipped below $7 billion in November last year, our risk shot up to 6,000 points from 1,000 points,” Dhedhi said.

He hoped that this risk would soon come down to the previous level of 1,000 points from 1,500 points at present and a further reduction in the risk would encourage international investors to flock back to Pakistan.

http://www.thenews.com.pk/daily_detail.asp?id=170750