Omar1984
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KARACHI: The benchmark KSE-100 index breached the psychological barrier of 9000 points on Firday, a phenomenon, which could only be witnessed 263 days back when the market was artificially held up by the placement of the floor.
The major force behind this upsurge in the bourse is the flocking of the offshore investors.
The buying frenzy that took the local bourse to new heights after the removal of floor from the market helped the market gain 461 points or 5.4 percent on weekly basis.
Despite no positive triggers, flows from offshore investors have created a bull run, analysts pointed out. They believed that the local investors, who have been supporting the market after the last year price-floor triggered crisis, are the major sellers in the market
But the buying euphoria by the Foreign Investment Institutions (FIIs) is so strong in Pakistan that benchmark KSE Index gained 11 percent in last two weeks at a time when regional markets have not performed well.
Mega inflows have been observed in Pakistan market that saw huge outflows at the beginning of the calendar year. In just two weeks, net buying of $110 million was seen in local bourses, according to NCCPL statistics. Last week $86 million net buying occurred. This brought down the net selling to date in 2009 to $98 million.
“It looks like that the risk-loving investors who have minted money in other markets are targeting under-performing Pakistani market whose paying ability has improved after the IMF additional funding. S&P has also endorsed this by upgrading Pakistan by one notch to B-, still six levels below investment grade,” Mohammad Sohail, Chief Executive Officer (CEO) Topline Securities observed in a research report.
These huge flows have created a price impact because since last one year the depth of Pakistan market has been affected substantially due to absence of famous badla and due to the fact that big players have lost tonnes of money.
Muniba Saeed, analyst at InvesCap said that despite other factors, these are the foreign investors are pulling the strings in the market with their entry like sheep herds in the lock market during the week.
The impact can be judged from the fact that in last two weeks foreign activity was 13 percent of total volume of Karachi bourse. As a percentage of actual settlement, foreigners share was 30 percent on an average in last two weeks.
At current levels, Pakistan is trading at 8.5x PE multiple. This is slightly better than last 20-year average PE of 9-10x. After the recent bull run, Pakistan is at 40 percent discount to average regional PE of key Asian countries from a discount of more than 50 percent a few months back. However, the current discount is now in line with historical average discount of 30-40%.
With local investors now on the sideline after selling aggressively during last week, the FIIs inflows can only sustain these price levels. Though the local political and economic conditions have an impact on stock market, Sohail said that the main driver in next few weeks would remain the buying and selling numbers of offshore investors.
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