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Future of investments in Pakistan – Equity market

Published on 31st Oct, Edition 44, 2016

 

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Warren Buffets.

This quote has never before so adequately applied to the Pakistani stock market as today, things are just about to take a huge turn for the better. We expect the equity market to generate returns that would surpass even its own stellar record. Now is the time to put all your metaphorical eggs into one basket, i.e. equities.

Global community has recently restored its confidence on Pakistan’s economy, which is exhibited by the fact that the country has been upgraded to Emerging Markets Index from its earlier position of Frontier Market. Since then, KSE-100 has generated a stellar return of 13%. While, the actual addition is expected to happen in May 2017, many active investors have started to build positions in the market.

There are nearly USD 2 trillion of funds tracking the emerging markets equities. Given the size of global funds tracking emerging market equities, market is ripe for potential re-rating of multiples.

Currently, MSCI Emerging Market Index trades at a P/E multiple of 13.5 x, at a premium of 38% from the MSCI Frontier Market multiple of 9.8 x. As a matter of fact, during the last MSCI decision to upgrade UAE and Qatar from frontier markets to emerging markets in June 2013, both the equity markets rallied by 98% and 38% respectively, one year after the decision was announced.

And that is only one of the triggers waiting to rain gold, CPEC is another gold mine altogether. A USD 51.5 billion corridor with portfolio varying from transportation to power generation will give a major boost to the local economy. It will provide jobs, raise standards of livings, and provide a much need boon to the local industry. The project involves development of Gwadar sea port, numerous energy projects, infrastructure projects (roads and railways), and formation of Special Economic Zones. Development of CPEC project is expected to add approximately 2% to our GDP growth, this growth is mostly to be driven by the industrial and manufacturing sector (which is also the biggest portion of GDP) and will likely spill over to the services sector. Besides the obvious advantage, CPEC will serve as a personal “road show” for Pakistan, attracting investors from all over the world, and a portion of this money will come in the form of Foreign Portfolio Investments (FPI) adding further fuel to the returns of equity markets.

The world has run out of steam; World Bank, IMF and other global institutions continue to cut their global growth forecast, all time low oil prices have depressed the glory of the Middle East. Brexit has raised fears and uncertainties regarding European Union’s (EU) survival, and even China’s huge economy is taking hiccups. Alongside, given low yields in fixed income markets internationally and locally, we foresee local equities to remain the best available avenue for the global and local investors.

Now, the question that arises — with all these good things happening in the equity market, how can a common person benefit? Can he just put his money into any stock? How can he possible be expected to research about stocks when he has a 9 to 5 job, family commitments, and a social life to balance? As Peter Lynch says “Equity mutual funds are the perfect solution for people who want to own stocks without doing their own research.” Mutual Funds are the gateway for the common men to the equity market; they can put their money in the hands of experts and just reap the rewards and take advantage of the vast experience and expertise with only a small management expense.

MCB-Arif Habib Savings and Investments Limited has an equity scheme (MCB Pakistan Stock Market Fund-MCBPSM) that is perfectly placed to take advantage of the upcoming rally in the stock market. MCBPSM is led by a professional team and has generated an average return of 25.89% since inception (11th March 2002-30th September 2016) outperforming the stock market (KSE 100 index generated an average of 23.50%).

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