Over $259 million net selling in CY15: foreign outflows take their toll on KSE returns

Continued foreign outflows took its toll on returns at Karachi Stock Exchange (KSE) where the benchmark KSE-100 index grew year-to-day (YTD) by 5.4 percent, 0.4 percent in dollar terms, during the outgoing calendar year 2015. "Returns, provided by Pakistan equity market in 2015, have not been outstanding compared to previous years," said analysts at Topline Research in a report issued on Monday.
In CY2015 to date, the MSCI Pakistan declined by 14.8 percent. "One of the major reasons for the below-par return has been the outflow of foreign investment," opined analyst Hamza Raza. During the year under review, offshore investors sold portfolios worth $259.6 million, on net basis. The downturn, the analyst said, had been brought about by global uncertainty amid underperformance of the Chinese economy and falling commodity prices, especially decline in oil prices (WTI Crude down 22 percent YTD) that affected profitability of listed oil and related companies.
Despite the not-so-attractive returns, some stocks have outshined the broader market. The outperformers are mainly small cap companies mainly owned by local investors with Associated Services (ASRL) topping the list having an adjusted return of 1,359 percent.
The stock started its upward trajectory after the company received an offer from Macter International, a local pharmaceutical company, to acquire 85 percent of the outstanding shares of ASRL, viewed Raza. Noon Pakistan (NOPK), the maker of Nurpur butter and milk products, and its non-voting share (NOPKNV), were next in line as the stocks returned 604 percent and 834 percent YTD, respectively. "The reason behind the increase is that earlier this year, Fauji Fertilizer Bin Qasim Ltd (FFBL) announced that FFBL and Fauji Foundation want to acquire 51 percent voting shares of Noon Pakistan," he said.
The move is part of the FFBL's strategy to enter into the dairy business. Scrips in the steel sector also attracted investor's interest. The Growth of construction activity in Pakistan is boding well for the steel sector, despite lackluster demand in the international arena.
Moreover, projects under China Pakistan Economic Corridor (CPEC) are going to result in increased demand for steel products. Stocks like Dost Steels (DSL), Crescent Steel (CSAP) and Mughal Iron & Steel (MUGHAL) had year-to-date (adjusted) returns of 357 percent, 186 percent and 178 percent, respectively. Selected stocks in the booming automobile sector, namely Ghandara Industries (GHNI) and Ghandara Nissan (GHNL), outperformed the broader market on the back of improved sales in the current year aided by improvement in overall economic situation in the country.
Sales of Isuzu trucks, manufactured by GHNI, increased to 998 units, up 38 percent YoY in 10M2015. Similar trend was seen in sales of Nissan trucks, made by GHNL, which increased by 74 percent YoY to 752 units in the 10M2015 period. The stocks are up 682 percent and 275 percent YTD, respectively.
"We have observed that most of the top performing stocks are thinly traded and many investors may not have minted money by trading in them," said Raza. However, there are a few actively traded stocks, like TRG Pakistan (TRG), Hascol Petroleum (HASCOL), Pace Pakistan (PACE) and Byco Petroleum (BYCO) that have resulted in enhancing investor's wealth in 2015.
TRG Pakistan (TRG) has gained 225 percent YTD and has kept investors interested as evident from average daily volume of 10.3 million shares. The company's management believes it is driving value from its subsidiary SATMAP, an data analytics service provider, which it believes is the key upside driver for TRG's future growth. On the oil marketing front, Hascol Petroleum (HASCOL) was a favourite as the stock is up 186 percent YTD. Improved earnings coupled with the management's ambitious growth plans show bright future prospects which helped the scrip earn above-market return.
Moreover, the analyst said the company had recently received an offer from Vitol Dubai, an arm of the Singapore-based energy trading company Vitol Asia Pte, to acquire 15 percent of issued capital of HASCOL along with an option to acquire further 10 percent in the coming year.
PACE, being a real estate development company, has enjoyed investor interest as the stock is considered a value investment in the booming real estate industry of the country. The stock is up 150 percent YTD. BYCO's return of 159 percent YTD can be attributed to an improvement in the company's earnings and business prospects as the company reported a consolidated LPS of Rs 0.7 in FY15 compared to a LPS of Rs 6.5 in the same period last year. Moreover, BYCO, along with its wholly owned subsidiary Byco Terminals Pakistan, is considering to merge with its holding company, Byco Oil Pakistan.