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Karachi Stock Exchange categorized as the world’s best stock market

Published on 3rd Nov, Edition 44, 2014

 

Karachi Stock Exchange was declared by The Economist as the best market. Brazil and Philippines were beaten by the small Karachi Stock Exchange (KSE), which rose by 40 percent in local currency terms. Of stock markets hunted by The Economist, only Japan’s has performed better.

Leaving terrorist explosions the exchange’s strong performance was partly due to improving conditions in Pakistan, including a reasonably free and fair election in May, which was followed by a peaceful handover of power. Also, the slowing down of the BRIC economies has driven investors to try out ever more alluring markets.

The Karachi Stock Exchange’s high speed growth was due to an unusual amnesty enacted in January 2012. The government declared that from that date, investors would be allowed to buy shares with no questions asked about where their money came from. The amnesty, which was due to last until June 2014, was designed to encourage people with undocumented funds to invest them in the market, thus bringing the cash into the formal economy and within reach of the taxman.

With 49 percent returns in 2012, the Karachi Stock Exchange (KSE) was one of the five best performing markets in the world. Despite chaotic economic, political, social condition, Taliban bombers, extortionist and targeted killing it is still considered one of the world’s most successful stock markets.

Pakistan equities attracted about 11 percent of total net inflow of $3.7 billion (as of Dec 5, 2013) seen in frontier markets in 2013 and remained the most lucrative market for foreign investors. During the year, foreign fund managers bought $2 billion and sold $1.6 billion worth of equities, which resulted in net inflow of $398 million against $125 million in the previous year. Foreign fund managers held equities worth $4.4 billion in Pakistan, which makes up 36 percent of the free float (eight percent of total market cap). Current foreign holding was also the highest since 2008, when it was at $5.1 billion.

The market remained among one of the best performing frontier markets in the last two years. Out of 26 frontier markets as defined by MSCI (Morgan Stanley Capital International), Pakistan ranked 7th in the outgoing year 2013 with MSCI Pakistan gaining 38 percent, outpacing MSCI-FM growth by 17 percent. Pakistan has traded at a discount of 32 percent to frontier markets, which has now shrunk to 20 percent. Despite this, Pakistan remains one of the cheapest markets amongst its MSCI-Frontier Markets peers from Africa, Asia and the Middle East.

Pakistani shares beat Asian and BRIC Market Indices in 2012. Karachi’s KSE-100 Index surged nearly 50 percent (37 percent in US $ terms) in 2012 against top all Asian market indices. It was followed by Bangkok’s SET index which advanced 36 percent. It also easily beat India’s Sensex index, which was the top performer among BRICs with 25.19 percent annual gain.

Pakistan was one of the cheapest markets. It was about seven times earnings. The earnings growth has kept pace with the market. The firms are typically cash-rich, boast strong return on equity levels in the 20 percent range, and pay good dividends.

 

Karachi shares market significantly outperformed Mumbai. Pakistan’s key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. In spite of the currency decline, Pakistan’s KSE-100 Index surged 55 percent in 2009 in US dollar terms and 65 percent in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5,000 points to close at 17,464.81. More surprising is the gigantic 825 percent increase in KSE-100 from 1999 to 2009, which makes it an importantly better performer than the BRIC nations.

Pakistan’s KSE-100 shares traded well below the price-earnings of Mumbai or Shanghai, and its KSE’s market cap was only a fraction Pakistan’s GDP, which was a healthy sign for future increase in valuation. By contrast, the Indian stock market capitalization exceeded India’s total GDP. Lower current valuation relative to BRIC markets meant that there was greater potential for growth and higher returns on investments in Pakistan in the future.

The Pakistan Stock Market (KSE-100) increased to 30225.62 Index points in October from 29726.39 Index points in September of 2014. Stock market in Pakistan averaged 6820.31 Index points from 1990 until 2014, reaching an all-time high of 30474.75 Index points in July of 2014 and a record low of 538.89 Index points in June of 1990.

Latest report says that the Karachi Stock Exchange (KSE) benchmark 100-Index increased by 73 points last Friday amid recovery in oil stocks. Senior member of the KSE said as soon as sit-ins and political protests ended, the market had become stable. If political matters are resolved and there is no threat to the government, the market can go around 2,000 to 3,000 points upwards as there is a potential.
The KSE-100 Index closed higher by 73.36 points, or 0.24 percent, to 30,098.49 points over the last session of the week ended. The highest index of the day remained at 30,243.55 points while the lowest level of the day was recorded at the starting level of 30,025.13 points. KSE-30 Index also improved by 91.21 points, or 0.46 percent, to 19,977.30 points.

Turnover slightly improved to 191.70 million shares from 191.24 million shares, trading value rose to Rs9.97 billion from Rs8.61 billion while market capital fell to Rs6.99 trillion compared with Rs7.00 trillion recorded in the last session. Of a total of 388 companies active in the session, 168 closed in green, 198 in red whereas 22 remained neutral.

In spite of all the serious problems, Pakistan faces today, we are optimistic that country will not only survive but flourish in the coming decades. With a moderately large educated urban middle class, vigorous media, bustling civil society, forceful judiciary, many philanthropic organizations, and an essence of entrepreneurship, Pakistan has the necessary constituents to overcome its current difficulties to build a strong economy. In this context we hope that as soon as sit-ins and political protests end, the KSE will boom and will retain its position of strength as it was in 2012.

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