KSE100 down 2.3 percent with lackluster volumes: Pakistan worst performing equity market of region in February

Appearing as a worst performer among its regional peers, Pakistan's equity market ended up in the red zone during the just-concluded month of February, thanks to a good mix of positives and negatives. With a negative month-on-month (MoM) return of 3.15 per cent, Pakistan equities were last month's worst performer in Asia Pacific region, according to market observers.
Opening positive on easing CPI inflation numbers of 3.88pc for January, the KSE index shed 2.36pc or 1,044 points to close at 33,632 points during February. The trading turnover was no exception as average daily volume of all shares slid 21pc to 242 million shares from 304m shares a month earlier. Initially, lower inflation, expected rate-cut in State Bank's policy rate and IMF's approval of $518m EFF tranche were the major triggers for the index, once crossing the 35,000 points psychological barrier in intraday trading.
The index, however, started feeling the heat as listed firms started announcing their financial results. While the banking and auto sectors results came up to the expectations of investors, the textile and oil sector largely dampened their hopes for attractive profits.
The cement sector companies announced mixed results. What, however, panicked the risk-averse market participants was increasing outflows of portfolio investment from the bourse. "KSE witnessed the retreat of foreign investors from local bourse as depicted by the net selling of $62.5m as compared to net buying of $6m in Jan'15," observed Irfan Saeed of InvestCap Research.
While the electricity and construction and material sectors witnessed $47m and $15m selling, the oil and gas stocks received $15m inflows compared to $2.2m net outflows of January. Underlining the negatives, Saeed said international oil prices continued exerting downward pressure on the index as well as falling commodity prices, squeezing banking spreads and poor law and order situation were major drags on the, otherwise, booming KSE index.
"Despite a commendable corporate result season, KSE-100 failed to explore new levels with volumes remained on the lower side," said Yawar-uz-Zaman of Shajar Capital. Trading activity, he said, remained skewed towards low tier scrip as the average traded value sharply declined by 14pc to $138m.
On international level, Pakistan showed, among MSCI frontier markets, a loss of 3.15pc as against the index return of 2.9pc, lagging by 6.05pc. Also, Pakistan was beaten up by the MSCI emerging market and MSCI world index that generated respective returns of 3 and 5.7pc. "A peer analysis reveals that Pakistan was the worst performing market of Asia Pacific region with a negative return of 3.15pc MoM," said Saeed.
Taiwan was the best performing market in Asia Pacific region with 3.66pc return.
Going forward, the analysts foresee new triggers coming to help the market grow during the current month. They expect lowering inflationary pressures in the country and the consequent monetary easing by the central bank as major stimuli for the local bourses. The lower CPI would pave the way for a further cut in discount rate which would further lure equity investors to leveraged stocks in cement, fertilizer and textile sectors. Currently, KSE-100 is trading at an attractive forward PER of 9.1x and DY of 5.45pc against the average regional multiple of 16.9x and 2.5pc, respectively.