PSX emerges as Asia’s best-performing market in 2016

MSCI reclassification, enormous domestic liquidity drive Pakistan equities

Fareeha Mufti December 30, 2016
Benchmark KSE 100-share Index gains 140.31 points

KARACHI: Pakistan’s benchmark equity index, the KSE 100-share Index, rallied 45.6% (45.7% in dollar terms) to become Asia’s best performing market in 2016.

According to an analysis of Topline Securities, the Pakistan Stock Exchange (PSX) generated above-average gains in the outgoing year.

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Amongst Asian markets, Pakistan remained on top. Moreover, it also remained number one in the MSCI Frontier Market Index.

The multiyear growth trajectory received a boost after the MSCI announcement to reclassify Pakistan from the Frontier Markets to Emerging Markets, resulting in the KSE-100 index outperforming its peers in frontier markets and most of the countries in emerging markets.

Improving domestic economy and enormous local liquidity supported the index levels at the time of weaknesses.

The strong performance of Pakistan equities in 2016 was mainly led by strong local cash liquidity thanks to the falling interest rate and rising investor confidence.

The country’s economic recovery positively affected local demand for various sectors and the rebound in oil prices and better security situation also provided support.

Insight Securities analyst Zeeshan Afzal said trading activity remained strong at the PSX during 2016 with average daily value at $109 million versus $111 million in 2015. Average volumes increased 14% to 281 million shares.

Contrary to expectations, foreigners remained net sellers in 2016. They bought shares worth approximately $3 billion and sold stocks valuing $3.4 billion, resulting in net selling of around $350 million, according to data of the National Clearing Company of Pakistan Limited. This is higher than 2015’s net outflow of $315 million.

According to Topline Securities, despite the booming market, in the absence of government offerings, Pakistan witnessed just three initial public offerings in 2016 that raised Rs4.2 billion against offerings of Rs116 billion in 2015.

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Additionally, a landmark development that boosted the PSX was the sale of its 40% strategic stake to a Chinese consortium valuing the exchange at $215 million.

Investors now hope about introduction of new products and better governance that will go a long way towards the development of Pakistan’s capital markets.

“Automobile, cement, oil and gas stocks remained the star performers while the fertiliser sector underperformed the KSE-100 due to urea supply glut.”

Afzal asserted that 2017 also looked very favourable for Pakistan equities as the MSCI reclassification had added a fresh impetus to the already built investment theme based on political stability, macroeconomic strength, better security situation and Chinese investments.

“PSX divestment further builds the enthusiasm, which will result in better liquidity, new products and investor confidence. We foresee the KSE-100 index crossing 56,000 levels by Dec 2017,” said Afzal.

Published in The Express Tribune, December 31st, 2016.

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