KARACHI: Pakistan was the best performing equity market in the world in third quarter 2020 with the KSE-100 index following up its impressive second quarter 2020 performance, with another impressive return of 18 percent in PKR and 19 percent in USD terms during third quarter 2020, analysts said.
During second quarter of 2020, equity market returns were 18 percent in Pak rupee turn and 17 percent in USD turn.
It takes KSE-100’s recovery from its recent low on March 25, 2020 to 48 percent. The country has seen a substantial reduction in Covid-19 cases (from average increase of 5,500 cases/day in June to 650 cases/day now), while economic activities have seen an almost complete resumption from Jul/Aug 2020, Topline Securities research report issued here on Wednesday said.
The market continues to reap the benefits of the stimulus packages provided by the Government and the Central Bank. The interest rate cuts by the latter has resulted in injection of additional liquidity into the market, along with re-allocation of portfolio towards equities vis-à-vis fixed income.
It has also reflected in overall increase in turnover at the bourse, with third quarter of 2020 average traded volumes increasing by 403 percent on YoY to 500 million shares/day and average traded value rising by 347 percent YoY to $105 million/day.
The individuals were again key buyers during the quarter with net buying of $108 million, while foreigners and banks were top sellers with net selling of $95 million and $46 million, respectively.
Key sectors that outperformed during the quarter were Refinery and Engineering, while Oil & Gas Exploration and Fertilizers underperformed in the market.
“We expect market direction to be determined by multitude of factors in fourth quarter of 2020:
FATF Plenary meeting on Oct 21 - 23, 2020, where discussions will revolve around Pakistan’s performance and whether it merits upgrade/ downgrade/ status quo on its grey-list status.
G-20 Summit on Nov 21 - 22, 2020, where there could be a potential announcement of extension in debt relief for another year.
IMF discussions will be pivotal in government’s decision to increase power and gas tariffs.
Political Noise, as Pakistan Democratic Movement, alliance of almost all opposition parties, looks to turn up the heat on the incumbent government.
Covid-19 second wave, which so far Pakistan has successfully managed to dodge.
Inflation readings have already been higher than expectations. If food prices continue to keep inflation readings on the higher side, then market may start to build in early increase in interest rates.
Developments on renegotiation of IPPs contracts and GIDC review petitions, which may substantially reshape the landscape of several listed sectors.
Update on Competition Commission of Pakistan (CCP) action on APCMA, after the commission searched and inspected the association office for possible cartelization.”
The valuations of Pakistan market remains attractive with market 2021F P/E of 6.6x with corporate earnings likely to grow by 12 percent YoY in 2021F.
The market continues to trade over 55 percent discount to MSCI EM (Asia) compared to its historical average discount of 40 percent.
The spread between the market’s earnings yield and 12M T-bills have expanded as a result of aggressive cut in interest rates by SBP.
“We remain Over-weight on E&Ps, Cements, Steel and Autos while we maintain our Market-weight stance on Banks, Fertilizers, Pharmaceuticals and IPPs,” the report said.
Copyright Business Recorder, 2020
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