Will bulls charge to Pakistan equities again?
The benchmark KSE-100 Index, which joined the MSCI Emerging Market in May 2017, dropped by 7.1 per cent in August, its seventh consecutive monthly decline.
Dubai - Better economic indicators under IMF programme, easing of tensions with India to boost sentiment
The Pakistan Stock Exchange (PSX) is expected to remain bearish for the rest of 2019, providing an opportunity to overseas Pakistanis as well as foreign investors to invest in the market at low valuation and reap yield good returns in 2020, experts say.
Analysts said the PSX's benchmark KSE-100 index is likely to post a 15 to 20 per cent jump in valuations by June 2020, due to a possible improvement in macroeconomic indicators under the International Monetary Fund's programme, as well as easing of border tensions between Pakistan and India over Kashmir.
Ratings agency Standard & Poor's, which maintained Pakistan's long-term outlook at 'stable' while affirming the country's 'B-' long-term and 'B' short-term sovereign rating, said its stable outlook reflected its expectations that funding from the IMF and other partners will be sufficient for the country to meet its considerable external obligations over the next one to two years.
Foreign investors withdrew $5.4 million investment last month while overseas Pakistanis bought shares worth $24.4 million and sold $24.3 million, reflecting a slight rise of $0.1 million.
Energy ($5 million), banking ($3 million) and fertiliser ($1.8 million) remained the top three sectors in terms of foreign selling in August, while the cement industry attracted $1.9 million investment last month.
"We see a gradual recovery in the market during the rest of 2019 as the economy recovers from the lows," said Samiullah Tariq, director ofr research at Arif Habib Limited.
He attributed market volatility to slow economic growth, higher interest rates at 13.25 per cent, a 8.9 per cent record-high fiscal deficit, the danger of having a negative consequence from the Financial Action Task Force and a threat of a global recession.
Tariq said the banks, fertiliser and energy sectors are expected to drive market recovery.
However, he expressed his concern that chances exist that the IMF conditions will not be met and it will have an adverse impact on the market and economy, which is expected to post a 2.4 per cent growth in financial year 2019-20 - a 12-year low.
The benchmark KSE-100 Index, which joined the MSCI Emerging Market in May 2017, dropped by 7.1 per cent in August, its seventh consecutive monthly decline chiefly due to prolonged tensions with India and poor macroeconomic conditions in the country. The market dropped 29.77 per cent on a year-on-year basis and shed 19.95 per cent of its value so far in 2019.
Muzzammil Aslam, managing director of Next Capital, said the market is in a bearish zone since May 2017.
"Initially, the market corrected due to expensive valuations, followed by Panama Paper-led political turmoil and lately due to steep macro concerns. The later has stimulated the decline further with tensions across the border," he said.
He said equity markets are migrating their leftover investments from equity to fixed-income market, due to an attractive interest income of 13 per cent. The same attractive interest rates are hitting the corporate earnings and their sales.
"The market is expected to stem its decline anytime soon and may enter into a consolidation phase," he said, adding that the performance of the banking, oil and gas sectors are interesting to watch in months to come.
Haris Zamir, a business analyst, said the market is currently in a bearish mode because of India-Pakistan tensions over Kashmir, but it will stage a strong recovery as soon as tension defuses.
"The market has a potential to bounce back. It may post 15 to 20 per cent gains by June 2020 on positive developments on the economic front," he said.
Under the one-year tenure of Prime Minister Imran Khan, he said Pakistan stocks shed almost 30 per cent of its value and was considered among the worst-performing markets in global indices.
He attributed the decline to a continuous rise in benchmark interest rates by almost 5.75 per cent, the devaluation of the Pakistani rupee by 40 per cent and tough taxation measures mainly aimed to document the economy tracing the trails of the flow of funds.
"Another key factor to decide about the improvement would be meeting the IMF roadmap. Nod from the IMF fulfilling set conditions for next two quarters to improve tax collection and control fiscal deficit will set tone for stock market appreciation," Zamir concluded.