Saifullah Sani
SENIOR MEMBER
- Joined
- Apr 15, 2011
- Messages
- 3,339
- Reaction score
- 2
- Country
- Location
Pakistan: Sharif win hope lifts stocks
May 1, 2013 6:17am by Farhan Bokhari
May 1, 2013 6:17am by Farhan Bokhari
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. Pakistan: Sharif win hope lifts stocks | beyondbrics
As far as investors on the Karachi stock exchange are concerned, the result of Pakistan’s parliamentary election on May 11 is already a done deal.
They’ve driven the market to record highs on the prospect that opposition leader Nawaz Sharif will be returned to power. On Tuesday the exchange’s KSE-100 broke through the 19,000-level for the first time and more record highs are expected before the election’s over.
Since the beginning of 2013, the KSE-100 has risen more than 12 per cent, up from approximately 16,900 points in early January.
All this investor exuberance might seem strange in a country beset by considerable economic challenges. The liquid foreign currency reserves stand at less than $7bn – roughly equivalent to only about two months’ of imports, a level at which the International Monetary Fund gets very worried about possible balance-of-payments crises.
Meanwhile, the fiscal deficit for the July-June financial year is expected by many independent economists to end at well over 8 per cent of GDP, up from a target of below 5 per cent.
Companies listed on the KSE have also had to contend with growing electricity shortages that have pushed down productivity.
To restore confidence in an otherwise battered economy, the new government’s first few tasks will likely include reaching out to the IMF for a new loan programme which is certain to come with tough conditions – conditions which may not necessarily be helpful for companies or corporate profits.
And ever-present is the authorities’ violent struggle to contain terrorism, Islamist extremism and the Taliban.
But stock market investors have taken all these factors in their stride. In the past five years since the country’s return to elected civilian rule, continuing security challenges posed by the conflict with Taliban militants and a sliding economy have failed to curb the KSE-100′s consistent growth.
It is now more than twice its level of December 2009. Clearly, investors pay less attention to the political and macro-economic situation than to the market itself.
Stock exchange investment has benefited from a government decree last year which allowed people to buy equities with no questions asked about the source of the cash. Average daily volume more than doubled last year to 173m shares from 79m in 2011.
Muhammad Suhail, head of Karachi’s Topline securities, says market optimism is soundly based on valuations that are still low.
The historic price/earnings ratio, based on 2012 earnings, is just 8 times, compared with a long-term average for Pakistan of around 9 and a current figure of 11 for the MSCI frontier markets index, which includes Pakistan.
Suhail said: “For many investors, the Karachi market remains very under valued. If you assess the price of a stock based on a company’s performance, that comes out higher than the going price in many instances.”
Add to this the prospect of Sharif returning to office. The former businessman followed business-friendly policies when he was last in office in the 1990s. Suhail suggests it’s sensible to expect a similar approach this time, if he wins. “Mr Sharif is expected to oversee an improvement in the economic environment,” he told beyondbrics.
A top Karachi based businessman agrees, saying: “My hunch is that Sharif’s expected victory in the forthcoming elections has helped to fuel the stock market’s rise.”
That sentiment could help the market in the few days that remain before the polls. But what happens afterwards is anybody’s guess. Remember the old market adage: ‘buy the rumour, sell the fact’.
Pakistan: Sharif win hope lifts stocks | beyondbrics
