KARACHI: Pakistan’s Benchmark KSE-100 index slumped from being one of the best performing markets in 2016 to 2017’s worst performing market in the world. The market generated below average returns in the outgoing calendar year 2017.
According to a brokerage house report, total return KSE-100 Index lost 15% (20% in US$) in 2017 vs. last 10-year avg. return of 24% (19% in US$ terms) and last 20 year avg. of 27% (22% in US$ terms). This is the worst year for Pak Equities since 2008 when market crashed 58% due to price floor.
After strong performance over the past 5 years (2012-16) with KSE-100 returning 33% annually, 2017 turned out to be a tale of two halves. The first half saw a bull run as upgrade to MSCI Emerging Markets (EM) garnered risk-off euphoric sentiments, which rallied the market up to a peak of 52,876 points on May 24, 2017, registering 11% growth in first 5 months (Jan-May 24 2017).
Subsequent to the upgrade, sentiments went south drastically as Pakistan’s weight in MSCI EM was lower than expected while foreigners emerged as net sellers instead of buyers. Further, FY18 Federal Budget was unfavorable for equity markets. The final nail in the coffin was the infamous Panama Leaks, which led to the disqualification of Pakistan’s Prime Minister.
These factors amalgamated into microscopic scrutiny of our economic shortcomings, with the market falling 23% from its peak.
After being one of the best markets in 2016 (5th best in world), Pakistan has become the worst in 2017, according to Bloomberg.
MSCI EM, FM & World indexes returned 34%, 28% & 20%, respectively in 2017. While peer countries such as India (+38%), Bangladesh (+18%), Vietnam (48%), Malaysia (21%) & Thailand (25%) posted healthy gains.
Due to Pakistan’s gross underperformance, Pakistan is currently trading at a 50% discount to MSCI EM vs. 10-Year historical discount of 21%.
As per Bloomberg, Pakistan Market is trading at P/E 7.9x with a dividend yield of 6.8%, vs. India’s P/E of 19.9x and dividend yield of only 1.9%.
Average daily traded volumes at the PSX were down by 16% to 236mn shares while average daily traded value was marginally up 3% to (US$115mn) in 2017. In the derivative market, traded value in single stock futures stood higher by 43% and were Rs4.3bn/US$41.1mn in 2017 as against at Rs3.0bn/US$29mn in 2016. Albeit volumes declined sharply in 4Q2017 due to political noise.
Pakistan Equity markets witnessed 3 Initial Public Offerings (IPOs) during 2017 (excluding Modarabas) raising Rs8.5bn, compared to 3 IPOs during 2016, which raised Rs4.2bn. Due to deteriorating investment climate & some regulatory setbacks, 3 IPOs amounting to Rs11bn were delayed.
Foreigners remained net sellers in 2017 for the third consecutive year. They bought shares worth US$4.4bn & sold US$4.9bn resulting in net outflow of US$488mn according to NCCPL data. This remained higher than 2016 net outflow of US$339mn and has taken 3 year outflow to US$1.1bn.
Analysts attribute this selling to foreigners exit, post Pakistan’s entry into MSCI EM index as valuations were stretched and outflows were further magnified by political and economic uncertainty witnessed during 2H2017.
his major chunk of selling was absorbed by Mutual Funds who bought US$217mn and Insurance Companies US$191mn.