KSE-100 index outperforms most asset classes this year

The KSE-100 index, which posted a return of 37 per cent, has outperformed various asset classes in the current fiscal year.


Faseeh Mangi June 25, 2010

The KSE-100 index, which posted a return of 37 per cent, has outperformed various asset classes in the current fiscal year, according to an analyst.

The Karachi Stock Exchange’s (KSE) benchmark index outperformed various asset classes by a gross 12 to 45 per cent ranging from equity, commodity, foreign exchange to debt markets with the exception of only gold, see graph.

Asset class is a group of securities that exhibit similar characteristics, behave similarly in the marketplace and are subject to the same laws and regulations.

However, the question remains whether the rebound of the index was because of cheap valuations, low base or reversal of the risk premia, said JS Global Capital analyst Atif Zafar.

“We go with the latter option and believe that during the past 12 months there has been substantial improvement in the risk premia which is evident from the political consensus on the NFC Award and the 18th Amendment along with smooth implementation of the IMF programme,” Zafar said in his research report. Risk premia mean the amount of risk involved in an investment.

This is evident from the macro statistics such as the current account deficit, which has declined by 66 per cent to $3 billion and improvement of Gross Domestic Product to 4.1 per cent from 1.2 per cent last year.

The bourse is still attractive as it trades at a discount of 44 per cent and 56 per cent compared with regional and frontier markets, respectively.

KSE’s finest performance since FY07

The KSE-100 index after a difficult two years rebounded sharply in fiscal year 2010 marking its finest performance since fiscal year 2007 by posting a return of 37 per cent.

The automobile & parts and oil & gas sectors were the key outperformers during the year by 29 per cent and 12 per cent, respectively.

The automobile & parts sector rallied on the back of a pick-up in auto sales while upward revision in wellhead gas prices and higher production flows were primary drivers for the oil & gas sector, said Zafar.

The construction & materials and financial services sectors were major laggards of the year under review underperforming by 49 per cent and 63 per cent, respectively.

Depressed financial markets and substantially low cement prices were the main reasons behind their poor performance, respectively, Zafar said.

The oil & gas sector, which had a weight of 29.6 per cent at the start of the year, now constitutes 34.8 per cent of market capitalisation while banks, which underperformed the index by 17 per cent, saw its weight decline to 22.6 per cent from 23.8 per cent at the beginning of the year.

Published in The Express Tribune, June 26th, 2010.

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