I was recently asked by some Pakistan business students to help them with a pitch to international investors to invest in Pakistani stock market.


Here's how I suggseted they argue to attract investors to KSE:


1. KSE has a strong track record of investor returns over the last one year, five years an ten years.

2. KSE-100 index has outperformed other emerging markets, including BRICs, by a wide margin for over a decade.

3. The worst case investment risks in Pakistan are already reflected in the deep discounts of valuations of Pakistani shares in terms of price-earnings multiples.

4. KSE-100 shares are trading at price-earnings multiples (P-E ratio) of less than 8, about half of other Asian markets in the region.

5. Pakistanis are a young, resilient nation. The people of Pakisan have defied the dire forecasts made after Swat violence in 2009, and massive summer floods of 2010.

6. After the deluge of Aug-Sept 2010, Pakistan's rural economy has bounced back as reflected in rising tractor sales and bumper crops.

7. The KSE selloff during floods has attracted foreign buying, with over a billion dollars pouring in in 2010.

In the end, I would quote Mark Bendeich of Reuters who wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune.

Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.

As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

And in spite of the 50% drop in KSE-100 2008,, those who invested and held their shares made a 5X return at the end of 2008, not bad.

And, even after the 50% drop in KSE-100 in 2008, any one who bought in year 2000 and held on till 2010, the return would be a whopping 12X, far outpacing returns on BRIC markets or anywhere else.

For more details, please read posts on my blogs which have lots of data with embedded and related links included.



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Pakistan Attractive as Growth Outweighs Violence, Atlas tells Bloomberg:

---“I really don’t spend any time worrying about law and order,” said Muhammad Abdul Samad, 40, who oversees $77 million in Pakistani stocks and bonds as chief investment officer at Atlas Asset in Karachi. “If you want to make returns, you have to look at the positives: we have a huge market of 180 million people and the economy is still growing.”

Gains in National Refinery Ltd. (NRL), the second-biggest oil processor, and Attock Petroleum Ltd. (APL), a fuel retailer, boosted Atlas’s top fund in the year ended June, Samad said. For the fiscal year starting July, it’s seeking investments in banks, oil and gas, and fertilizer industries, he said.

Pakistan’s benchmark stock index, which trades at 6.4 times estimated earnings, the lowest in Asia, has fallen 9 percent since the end of June as escalating violence hurt business confidence. Prime Minister Yousuf Raza Gilani’s government aims to boost economic growth to 4.2 percent in the year to June 30, 2012, from 2.4 percent in the previous 12 months.
“Selling from foreign portfolio investors is affecting the local market,” Samad said.

Last year, global funds bought $344 million worth of Pakistani stocks compared with net sales of $65 million, according to central bank data. More than 35,000 Pakistanis have been killed in terrorist attacks since 2006 as Taliban militants retaliate against military offensives in the northwest, according to the government.

Samad’s 650 million rupee ($7.5 million) Atlas Stock Market Fund outperformed all Pakistan’s 30 equity funds, according to Invest Capital Markets Ltd. The fund returned 40 percent in the 12 months ended June 30 and beat the 29 percent return of the benchmark Karachi Stock Exchange 100 Index.

His top five holdings as of June 30 were Nishat Mills Ltd., MCB Bank Ltd., Pakistan Oilfields Ltd., United Bank Ltd. and Allied Bank Ltd.

“Banks are going to post attractive earnings because if interest rates come down, they will lend more to the private sector and if they don’t, they will invest in high-yielding government securities,” said Samad, adding that the three banks are among his top picks this fiscal year. “Banks are in a comfortable position either way.”

Pakistan’s central bank unexpectedly cut the benchmark interest rate to 13.5 percent on July 30, after holding it at 14 percent, one of the world’s highest, for four straight reviews.

In the oil and gas sector, Samad likes Pakistan Oilfields, Pakistan Petroleum Ltd., and Attock Petroleum. Pakistan, which imports 80 percent of its fuel needs, is increasing production to reduce reliance on shipments from overseas. He also favors Fauji Fertilizer Ltd., the biggest urea maker, and Fauji Fertilizer Bin Qasim Ltd. (FFBL), a fertilizer producer.
“Active fund management, timely investment and divestment, as well as the performance of some stocks like Attock Petroleum were main reasons for Atlas’s outperformance,” said Mazhar Sabir, an analyst at Invest Capital Markets in Karachi.

Samad said Atlas may introduce a government bond fund this year targeting investments of three to five years and is considering a dividend-yield equity fund and a sector-specific stock fund next year.

“In the short run, law and order problems definitely hurt investors,” Samad said. “But in the long run, there’s no impact. And we’re here for the long run.”

Here's a Daily Times story on a report about Pak stocks and bonds historic performance:

Magnus publishes first comprehensive study on Pakistani stocks and bonds

KARACHI: The first comprehensive study about returns of stocks and bonds in Pakistan has been recently published by Magnus Investment Advisors Limited. The research provides data for equities starting July 1965 and for bonds starting January 2001. The study shows that long term real Pakistani rupees return (after inflation adjustment) on local equities ranges between 4.82 percent to 5.69 percent. The treasury bills have provided negative returns. The real return on 5 year and 10 year PIBs is 2.19 percent and 3.43 percent respectively. The study also provides nominal and US dollar returns. Issues such as 'Equity Risk Premium' and relevance of 'Purchasing Power Parity' in the context of local securities market are also dealt with. The study also provides an asset allocation frame-work for local trustees. The most interesting part is the analysis of equity returns in Pakistan with other emerging markets and investment in Pakistani equities from the perspective of foreign investors. The study conclusively demonstrates that Pakistan stocks do not represent any unusual risk in the universe of emerging markets. Pakistani stocks should get one of the highest allocations among emerging markets from the perspective of US investors. The study is not only useful for local trustees of retirement funds and charitable institutions but it also fills a major gap for local business schools where so far graduates had little knowledge and understanding about risks and returns of local capital markets. The study is also a useful read for the Ministry of Finance, SECP and BoI officials who are called upon to promote investment in Pakistan from time to time. Magnus is a boutique investment advisory firm based in Karachi. It acts as an investment advisor to retirement funds sponsored by large companies (mostly MNCs) in Pakistan.


Here's Dawn on KSE-100 among best performers in the world:

KARACHI: Pakistani stocks closed lower on Monday, although the market gained 49 per cent during 2012 and crossed 17,000 points for the first time.

The Karachi Stock Exchange’s (KSE) benchmark 100-share index ended 0.22 per cent, or 37.86 points, lower at 16,905.33.

The market’s rise was partly down to a substantial decrease in the interest rate, said dealer Samar Iqbal at Topline Securities.

Stocks that ended positively included Byco Petroleum, which rose 4.81 per cent, or 0.67 rupee, to 14.59 per share and Bank of Punjab, which was up 10.31 per cent, or one rupee, to 10.70 per share.

Stocks that fell included TRG Pakistan, down 0.7 per cent to 5.65 per share, and Fauji Cement, which fell 0.91 per cent to 6.53 per share.

In the currency market, the Pakistani rupee ended steady at 97.18/97.23 against the dollar, compared to Friday’s close of 97.17/97.23.

Overnight rates in the money market ended at 8 per cent compared to Friday’s close of 7 per cent.


Here's Bloomberg on Asian markets:

Dec. 28 was the final trading day of the year in South Korea, Taiwan, Indonesia, Thailand, Vietnam and the Philippines. Thailand’s SET Index surged 36 percent this year, the biggest advance by any Asian benchmark gauge after Pakistan’s Karachi 100 Index.


Forget the BRICs; Zambia, Estonia and Pakistan are the place for alpha investors, argues former Golaman Dachs executive Dambisa Moyo in a piece on Quartz.com :

The search for superior, uncorrelated risk-adjusted returns continues, and savvy investors such as endowments and family foundations are turning their attention to the frontier markets. Such markets exclude the BRICs, many of which posted sizable equity returns of over 30% last year, including Nigeria, Estonia, Pakistan, and Kenya. The MSCI Africa sub index posted one-year returns of over 60%. By comparison, the BRICs (Brazil, Russia, India and China) grew slower and sluggish—for example, around 4% on the Shanghai index and -2% on Brazil’s Bovespa.

A set of well-known factors bind these seemingly random countries. Solid debt and deficit dynamics; attractive labor trends, favorable demographics and upward mobility; and important productivity gains all make for a compelling economic growth story. However, there are two areas where perceptions of frontier economies are really changing: risk and liquidity.

In regards to risk, investors are beginning to better understand the significant benefits of delineating between risk, measurable and possible to calculate, and uncertainty, which is not. Like anywhere else, investors who can tap into on-the-ground networks and relationships have an advantage with risk management. But thankfully meaningful, the task of risk assessment has gotten easier with increases in transparency around economic and political information, data flows and widely available regulations over jurisdictions. The transition to western-styled democracy and fully transparent and liquid capital markets will be bumpy, but the uncertainty arising from these growing pains should be viewed in the context of an upwardly sloping trend line of progress which will almost certainly occur over a relatively short time line.

Correlations between frontier and developed stock market returns are around 0.75, compared to roughly 0.90 between developed and emerging economies such as the BRICs. Country risk premiums are close to those of the broader emerging markets. With proper risk management tools, this implies that investors can garner significant diversification benefits. The lower correlation between frontier and developed markets points to risk factors that are orthogonal to the global risk-on, risk-off theme that has captivated markets over the past five years. Frontier markets provide opportunities to step away from the global macroeconomic themes and focus on the micro stories on the ground, thus providing a better environment to identify unique investment opportunities. Smart investors are looking for great opportunities that are driven by company-specific issues from which they can analyze and profit.

In terms of liquidity, both equity and debt markets – international and local – have grown considerably over the last five years. Today, with a market cap of more than $1 trillion, the universe of stock markets boasts more than 8,000 listings across broad sectors with notable risk/reward profiles in financials such as banking and insurance, consumer goods, and telecommunications companies. A number of commentators erroneously believe investing in frontier markets is simply expressing a commodity trade. To assume this would be miss out on some of the more significant opportunities in these burgeoning markets such as in the logistics and telecommunication sectors. Moreover, to put a finer point on this, today Africa has almost 20 stock exchanges, with just over a thousand listed equities; more than 85% of these stocks are non-commodity related businesses....


Here's a Daily Times report on Karachi stock market rally:

KARACHI: The Karachi stock market crossed 18,900 points level on the last trading day of the week Friday as earnings frenzy continued to encourage investors to go for buying in oil, fertilizer and cement sectors.

The Karachi Stock Exchange (KSE) 100-share index gained 32.10 points or 0.17 percent to close at 18,917.71 points as compared to 18,885.61 points of the previous session. The KSE 30-share index was up by 10.81 points to close at 14,584.18 points as compared with 14,573.37 points.

“Mixed activity was seen at the market with corporate results season almost coming to an end,” said Topline Sec dealer Samar Iqbal. “Mixed March quarter results were announced today.”

Once again TRG came in the limelight as it closed at its upper cap with 27.5 million shares, she said and added that Engro Corporation and Foods saw some profit-taking ahead of the weekend.

The market turnover went down by 3.53 percent and traded 206.02 million shares as against 213.57 million shares of the previous session. The overall market capitalisation rose 0.34 percent and traded Rs 4.649 trillion as against Rs 4.633 trillion. Gainers outnumbered losers 204 to 146, while 17 stocks were unchanged.

“Stocks closed higher led by second-tier stocks on strong valuations,” said Arif Habib Corporation Director Ahsan Mehanti. “Index remained in a narrow range amid concerns over security unrest in the city, economic uncertainty and rupee fall despite recovery in global commodities and record quarter-end earnings announcements in oil, fertilizer, textile and cement stocks.”

The KMI 30-share index gained 36.24 points to close at 32,930.01 points from its opening at 32,893.77 points. The KSE all-share index closed with a gain of 48.06 points to 13,455.50 points as compared to 13,407.44 points of the previous session.

“The market closed in the green zone with intraday gains clipped by selling pressure in Engro Chemicals and Pakistan Petroleum,” said JS Research analyst Ovais Ahsan. “The banking sector gained led by MCB Bank and UBL as the sector continued to limp out of a long spell of underperformance.”

Adamjee Insurance corrected overbought momentum after a weeklong rally.

“Bulls reined the final session of the week as index came close to 19,000 points level during intraday trade,” said Habib Metropolitan Finance Corporation Salman Vidhani. “Selling pressure in Engro dampened overall sentiment as some stocks also registered a negative close.”

TRG Pakistan Ltd was the volume leader in the share market with 27.54 million shares as it closed at Rs 11.30 after opening at Rs 10.30, gaining Re 1. Lotte Chemical traded 16.43 million shares as it closed at Rs 7.54 from its opening at Rs 7.35, rising 19 paisas. Maple Leaf Cement traded 11.81 million shares and closed at Rs 18.95 as compared to its opening at Rs 19.36, shedding 41 paisas. Pervaiz Ahmad traded 11.50 million shares as it closed at Rs 3.29 as against its opening at Rs 2.57, increasing 72 paisas.


Here's a report on Karachi's KSE-100 hitting new highs:

Pakistani stock market surged by over 500 points today to a record high of 21,500 points on heavy buying by overseas investors, amid reports government plans to sell treasury bills worth USD 5 billion to pare debt.

The Karachi Stock Exchange's benchmark 100-share index closed 2.59 per cent, or 542.86 points, higher at 21,501.72.

"The market was buoyed by reports today that the new government plans to sell USD 5 billion in treasury bills to pay off a chain of debt that has led to power crisis and is affecting the economy," Sohail Ahmed, a market analyst, said.

The new government is planning to pay off the debt within the first 100 days in power as it believes the economy will only be lifted and foreign investments will grow if the power shortage crisis is dealt with immediately, said experts.

In Lahore, Pakistan's Prime Minister-designate Nawaz Sharif pledged that the incoming PML-N government would make efforts to overcome power problem as soon as possible.

The stock market rally came after two straight days of decline.

On the previous two trading days, the stock market saw profit-booking after a wave of massive buying saw investors betting big that the crisis-ridden economy would revert back to high growth under Sharif, set to become premier for an unprecedented third term.

The Pakistani rupee also remained stable on Tuesday ending in the market on 98.43/98.49 against the US dollar.

Sharif, himself an industrialist and co-owner of diversified multi-million dollar conglomerate Ittefaq group, has said that revival of economy would be among his top priorities. He is seen by many in Pakistan as someone who can fix the country's bleeding economy.

There are only 569 listed companies on the Karachi Stock Exchange, as against about 5,000 in the Indian stock market, where total investor wealth is close to Rs 70 lakh crore.

The number of companies listed on KSE has come down in the past few years, from more than 650 in 2009, as the country's economy has been struggling amid a turbulent political scene.

However, a clear mandate in the just-held historic polls is expected to revive the economic activities and therefore the stock markets as well.


Morgan Stanley doubling of #Pakistan's weight in #MSCI index drives foreign inflows into #Karachi. BAHL, Lucky, PSO

MSCI has agreed to implement all proposed changes to the Frontier Market (FM)Index,  which  along  with  the  upgrade  of  Qatar  and  UAE  would  increase Pakistan’s weight to 8.88% from 4.29% currently.  
ƒ The changes will be implemented in 7 monthly phases, from May‐14 and will be completed by Nov‐14.  Pakistan’s weight would increase to 7.28% in May‐14 due 
to Qatar and UAE upgrade, whilst 8.86% will be reached over the next 6 months.  
ƒ Amongst specific stocks, there are 3 additions from Pakistan to MSCI FM, incl. BAHL, Lucky, and PSO.   
ƒ Although most frontier market funds are actively managed and off benchmark,such  a  sharp  weightage  increase  would  significantly  increase  Pakistan’s prominence on the frontier map, and should be a fillip for the equity market.  


Pakistan's KSE-100 shares index crosses 30,000 mark to set new record

KARACHI: The long-awaited moment for the stock market arrived on Thursday when the KSE-100 index performed the incredible feat of crossing comfortably over the 30,000 points level.

The ravaging bulls tossed the index up by 400.94 points or 1.35 per cent to 30,177.11. The volume also jumped 83pc over the previous day to 206 million shares.

The immediate trigger for the bulls was provided by the global rating agency Moody’s upgrade of outlook for Pakistan’s economy to ‘stable’ from ‘negative’. It was sweetened further by the rating agency’s outlook on five Pakistan banks to ‘stable’ from ‘negative’.

All five banks were major gainers on Thursday with ABL up by Rs5.87; HBL by Rs3.66; MCB by Rs5.41; NBP by Re0.69 and UBL by Rs8.35. Elsewhere, PSO rallied by Rs7.67 and Lucky Cement advanced by Rs15.93. Brokers said that cement shares were powered by expectations of healthy June results.

Most market gurus admit that foreign investors have been the engine that drove the market to its all-time high. On Thursday, foreign funds bought equity worth $6.44m, which raises the total inflow to $33.7m only during the first three weeks of July.


Mohammad Sohail, CEO at Topline Securities, observes: “After increasing by 49pc in 2012 and again 49pc in 2013, local market index is up 19pc in this calendar year to date.”

He pointed out that in the last two and a half years, the index had shot up from 11,000 points to reach 30,000 led by “foreign flows, smooth political change and recent signs of economic recovery.”

Khurram Schehzad, chief investment officer, Lakson Investments, pointed out that the Pakistan bourse had benefitted from increase in weight in the MSCI Frontier Market index which elated Pakistan to third place, after Kuwait and Nigeria.

He observed that since January 2012 when the market first picked up momentum, foreign inflows into the Pakistan market amounted to the tall order of $826m.


It’s going to take more than the cheapest valuations in 12 years to convince Shane Oliver that the time is right to buy Hong Kong stocks.

The Sydney-based global strategist at AMP Capital Investors Ltd. says the Hang Seng Index’s slide into a bear market could deepen as China’s growth slows and the U.S. moves closer to raising interest rates. The selloff has pushed valuations to the lowest level since 2003 versus global equities and left Hong Kong shares trading in line with counterparts in Pakistan, a nation grappling with chronic power shortages and a Taliban insurgency.

“The Hong Kong market is incredibly cheap down at these levels, but I wouldn’t be rushing in,” said Oliver, who helps oversee about $119 billion. “It’s stuck between a rock and a hard place.”

Hong Kong’s dollar peg means the former British colony will import higher interest rates from the U.S. as soon as next month, putting pressure on an economy where financial services and real estate are among the biggest drivers of growth. China’s economic slowdown and surprise devaluation of the yuan are also squeezing corporate earnings as cross-border demand wanes. The Hang Seng index has dropped by an average 35 percent in bear markets over the past four decades.

Relative Value

The benchmark gauge for $4.3 trillion of shares was valued at 9.8 times reported earnings on Thursday, a 44 percent discount to the MSCI All-Country World Index. That’s the cheapest level among developed markets worldwide and compares with a multiple of 10.2 for Pakistan’s KSE 100 Index. Russia’s Micex has the lowest valuation among major markets, trading at about 9.5 times profits.

The Hang Seng measure dropped 1.5 percent to 22,409.62 at at the close of Friday trading after weaker-than-estimated Chinese manufacturing data, extending losses from an April peak to 21 percent and entering what traders consider a bear market.

“Investors aren’t going to buy even with current cheap valuations,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $41 billion. “We need to see positive drivers, such as more aggressive monetary easing from China or the deferral of a Fed rate hike.”

The Hang Seng index’s valuation is approaching levels that foreshadowed past recoveries. The gauge’s price-to-earnings ratio bottomed out at 6.9 in October 2008, leading to a 101 percent surge over the next 12 months. It rallied 29 percent after the multiple reached 7.5 in October 2011.

‘Dark Clouds’

“This is really the time to buy from a long-term investor’s perspective,” said Rahul Chadha, co-chief investment officer at Mirae Asset Global Investments in Hong Kong. “You’re not seeing a hard landing in China. In the next couple of quarters as you see the economy stabilize at lower levels, people will take a fresh look at the market.”

The Hang Seng measure’s 46 percent weighting in financial stocks, which tend to trade at low price-to-earnings ratios, may make the market appear cheaper than it really is. While China Construction Bank Corp. is valued at 5.3 times earnings as of Thursday in Hong Kong, the median multiple of shares on the city’s exchange is 11.5. That’s 17 percent higher than the index.

For Baring’s Do, concerns over China’s economic outlook and the first Federal Reserve interest-rate increase since 2006 are likely to keep weighing on Hong Kong shares.

Retail sales in the city declined for a fourth straight month in June amid reduced demand from Chinese tourists, a trend that may continue after the yuan’s biggest tumble since 1994 last week. Bloomberg’s monthly gross domestic product growth estimate for China fell to 6.6 percent in July, the first drop in five months.

Odds of a Fed rate increase by December are about 65 percent, according to futures traders, a move that could weigh on Hong Kong’s real estate market after prices climbed to some of the most expensive levels worldwide.

“There are dark clouds everywhere,” Do said. “All the bad news has been amplified and the good news has been swept away.”



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