During 1H2014, Pakistan stock market beat all other markets of the world, as it was ranked No 1, according to a report released by Vahaj Ahmed of Topline Securities, here on Monday. According to Bloomberg, new political set-up, improving economic indicators and foreign inflows created positive sentiments in the market.
Although Pakistan's benchmark KSE-100 Index returned 17 percent in Rupees-terms, strengthening of the local currency against US-Dollar helped Pakistan stand in the leaders table with 25 percent return in $-terms. To highlight, Pakistan stood amongst Top 10 markets in 2012 & 2013.
According to the report, fiscal year ending June 2014 (FY14) has been one of the best years for Pakistan stocks. In the outgoing fiscal year, benchmark KSE-100 Index gained 41 percent or 8,647 points. Fuelled by newly-elected investor-friendly government, economic and energy sector reforms, both local and foreign investors participated in Pakistan stocks in large numbers. Pakistan FY14 return of 41 percent compares favourably with the last 10-years and 20-years average annual return of 21 percent.
In FY14, MSCI Pakistan gained 23 percent as compared to 31 percent gain of MSCI Frontier Markets (MSCI-FM) and 16 percent gain of MSCI FM-Asia. Moreover, amongst Asian frontier markets categorised by MSCI, Pakistan ranks first outpacing Bangladesh (21 percent), Vietnam (13 percent) and Sri Lanka (-1 percent).
The report declared elections, economy and foreign inflow as key drivers for the capital market. Pakistan market welcomed business-friendly PML-N government, which came with clear objective to revive economy through energy sector reforms, and incentivizing businesses - sharp contradiction to PPP's pro-agricultural policies. As a result, Pakistan's GDP grew 4.1 percent in FY14, while 4.5 percent Large Scale Manufacturing (LSM) growth helped manufacturing sector grow by 5.6 percent. Historically, there has been a positive correlation between LSM and KSE performance as most of the listed companies represent manufacturing sector.
Contrary to early doubts, Pakistan external account posted surplus of $3.3 billion in 11MFY14. As a result, country's forex reserves crossed $14 billion-mark, helping Pak-Rupee strengthen 6 percent against US-Dollar in 1H2014. Other major impetus to the market, according to the report, is higher foreign inflows. Foreign investors, that hold $5.7 billion worth of Pakistan shares which is 33 percent of free-float that is 8 percent of market cap, remained net buyers in FY14, Vahaj added. During FY14, foreigners bought $2.1 billion and sold $1.8 billion, resulting in net inflow of $248 million. During 1H2014, net foreign inflows stood at $261 million compared to $411 million in corresponding period last year, he informed.
He added that "As mentioned in our 'Pakistan Investment Strategy' published on December 23, 2013, we still maintain our positive stance on the market and see benchmark KSE-100 Index rising to 30,000 points. However, we still hold our best-case forecast of benchmark index reaching 33,000 points by December 2014 with better-than-expected economic indicators."
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