The Karachi share market has lost half of its value during recent downfall in just four months as local bourse's capitalisation is down to $37.6 billion from a recent peak of $75.3 billion. In last four months, the benchmark KSE Index is down 42 percent (51 percent in dollar terms) from its peak of 15676.34 points on April 18, 2008.
"One thing that is badly missing in the country is investors' confidence and financial markets in Pakistan have been under pressure for last few months", said Muhammad Sohail, senior analyst at JS Global Capital.
Global financial crunch, rising commodity prices and local political situation has affected the macro-economic picture and that is reflected in the stock, money and currency markets, he added. Besides the equity market, the benchmark six-month T-Bill yield is up 240 bps while the rupee is down 16 percent in last 4 months.
He said that a similar trend was seen in 1998 after the nuclear testing. Market worth plummeted from $10 billion to $5 billion, a decline of 50 percent, between March and July 1998. Thus the recent decline is largest and equal to that of 1998, in terms of capitalisation, ever since the KSE-100 Index was launched in November 1991. It was at that time (early 1990s) when Pakistan market came under the limelight thanks to the financial sector liberalisation of the early 1990s.
In 1998, after the nuclear testing, the Index fell by 53 percent (55 percent in dollar terms) in a brief span of 4 months. The famous March 2005 crisis brought the Index down by 34 percent (34 percent in dollar terms) when leveraged bubble busted. A year later, in April 2006, index plunged 29 percent (29 percent in dollar terms) amid global market sell-off.
After this biggest fall, the KSE board of directors freezed share prices on the Cash and Derivatives market. That is share prices cannot go below August 27, 2008 closing while 5 percent upper and lower limit will work as normal. The Nigeria Stock Exchange did similar sort of freezing two months back.
He said that though the earnings growth projection has been adjusted downward, Pakistan is trading at forward looking PE of 6.9x. "We expect FY09 earnings to grow at 9 percent mainly due to 30 percent growth in heavy weight E&P firms", he said. In the post-nuclear scenario, market PE was 6x. This mean that Pakistan right now, on valuation multiples, is coming closer to what it was 10 years back.
Despite the fact that economic conditions are not as bad as it was 10 years ago after the economic sanctions. Moreover, compared to last 15-year average PE of 9.7x, valuations today are at 29 percent discount. "Thus, signalling that due to external and internal factors, confidence of investors is really missing", he added.
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