Despite witnessing two worst declines due to political uncertainty in the country, the Karachi Stock Exchange (KSE) broke a series of records to become the sixth best performer among the emerging markets by gaining 40 percent in the calendar year 2007.
The benchmark KSE-100 index started its run from 10,040.50 on January 1, 2007 and closed at 14, 075.83 points level on December 31, 2007 with a significant gain of 4035.33 points.
The KSE-100 index continued its upward journey since its starting point on January 1 and breached through many crucial levels. The index hit the highest level of 14,814.85 points on December 26, 2007. It witnessed two worst declines during the year, with a plunge of 635.80 points on November 5, 2007 just after declaration of emergency in the country, and its highest decline of 696.25 points on December 31, 2007 following assassination of Benazir Bhutto.
The overall market capitalisation rose by Rs 1.558 trillion during the year and settled at Rs 4.329 trillion on December 31, 2007 against Rs 2.771 trillion of the last trading day of 2006. The parallel free-float market capitalisation based KSE-30 index gained 4195.56 points to close at 16,717.10 level from 12,521.54 level on the first day of the year.
"The year 2007 turned out to be yet another exciting period for Pakistan equity market. Despite political vicissitudes in the country, KSE broke through a series of records to become the sixth best performer among the emerging markets, as defined by MSCI Emerging Market Index, by gaining 40 percent in the year", Ovais Siddiqui, Head of Research at JS Global Capital Limited said.
As in previous years, 2007 was marked by outbursts of foreign funds' interest in Pakistan's market, deriving from its improved fundamentals and substantial liquidity flows into Asian emerging markets. Similarly, owing to handsome performance and listing of two major banks--Habib Bank Limited and Standard Chartered Bank--the banking sector overtook the E&P sector as the largest sector on the KSE.
In contrast to the past, banks mainly drove the market with 41 percent return in 2007. On the other hand, fertiliser and OMCs under-performed the market with 38 percent and 23 percent returns in the year, respectively.
E&P sector disappointed investors with a return of just 7 percent. Coupled with relatively unimpressive earnings growth in FY07, the tremendous increase in the free float, as a result of offloading of 10 percent stake in OGDC by government through GDR, contributed to this bad show of the sector.
The outgoing year witnessed a major decline in the activity level in both ready and future markets. This can be attributed to doubling of CVT and other taxes on stock market transactions in FY06 budget and frequent changes in futures market regulations.
Jawad Haleem, senior analyst at Atlas Capital Markets, said that, on the whole, during the first half of FY08, the market ended just 2.2 percent higher than its opening at 13,772. However, taking into consideration the performance of the market during calendar year 2007, it depicted an increase of 40 percent.
Comparing the year's performance with those of the corresponding periods of the previous few years, it shows that FY08 saw the second lowest growth during its first half, as growth of merely 0.5 percent was witnessed in the first half of FY07, while the highest at 53 percent was observed in the first half of FY03. Similar were full-year trends with much greater magnitudes, though. CY07 saw the second lowest growth at 40 percent, whereas since CY02, the highest and lowest growths took place in CY02 and CY06 respectively.
Both political and law and order situation of the country remained bumpy during much of the year 2007. The situation began deteriorating when judicial crisis started in March 2007. After that, the occupation of Lal Masjid in Islamabad in July and imposition of emergency in the country on November 3 and implementation of Provisional Constitutional Order were the other factors, which affected the market negatively.
Ambereen Jiwani, an analyst at Invest Capital & Securities, said that the KSE-100 index continued to show impressive growth and gave returns to the tune of 40 percent during CY07. Insurance, Banking and Cement sector scrips supported the index, while E&P, Power and Telecom sector scrips under-performed.
AICL was the best performer, giving a return of 140 percent over the year, with 138 percent in the form of capital appreciation. The major reason for the rise was better than expected earnings for 2007 as a result of one-off significant capital gains to be booked this year, as well as expansion of insurance business.
Lucky Cement provided a return of 97 percent, mainly backed by price appreciation. These high returns were a consequence of improved share in the export market of cement, coupled with a low base effect of previous year. MCB Bank stocks rose by 63 percent, along with a dividend and bonus giving a return of 27 percent during the year.
DFML proved to be the worst performing scrip with negative returns of 16 percent. However, investment in Shell, SNGPL, HCAR, NCL, POL, PTCL, DSFL would also have been a bad decision as returns on them were lower than the risk-free rate of return. Out of banking sector, NBP under-performed the market, despite giving 17 percent and 44 percent returns in the form of dividend and bonus.
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